esprit holdings l im ited year ended 30 june...

www.espritholdings.com

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ANNUAL REPORTYear ended 30 JUNE 2010Hong Kong StocK code 00330

CORPORATE PROFILE

Esprit is an international youthful lifestyle brand offering smart and affordable luxury and bringing newness and style to the life of our customers. The Group operates with 12 established product lines offering women’s wear, men’s wear, kid’s wear, edc youth as well as shoes and accessories in over 1,100 directly managed retail stores and over 12,000 controlled-space wholesale point-of-sales internationally. Esprit licenses its trademark to third party licensees that offer non-apparel products that abide by Esprit’s quality standards and brand essence.

Esprit was listed on the Hong Kong Stock Exchange in 1993 and is a constituent stock of the Hang Seng Index, MSCI Hong Kong Index, FTSE All-World Index for Hong Kong, S&P/HKEx LargeCap Index and S&P Asia 50 Index.

Annual Report 09/10

CORPORATE INFORMATION

Chairman· Heinz Jürgen KROGNER-KORNALIK

Non-executive DirectorDeputy Chairman· Paul CHENG Ming Fun

Independent Non-executive DirectorExecutive Directors· Ronald VAN DER VIS

Group CEO· CHEW Fook Aun

Group CFONon-executive Director· Jürgen Alfred Rudolf FRIEDRICHIndependent Non-executive Directors· Alexander Reid HAMILTON· Dr Hans-Joachim KÖRBER· Raymond OR Ching Fai· Francesco TRAPANI

Company Secretary· Bella CHHOA Peck Lim

Principal bankers· The Hongkong and Shanghai

Banking Corporation Limited· Deutsche Bank AG· Industrial & Commercial Bank of China· China Construction Bank Corporation· Citibank N.A.

Auditor· PricewaterhouseCoopers

Certified Public Accountants

Principal legal advisors· Baker & Mckenzie

Stock codeThe shares of Esprit Holdings Limited arelisted for trading on The Stock Exchangeof Hong Kong Limited (stock code: 00330)

Principal share registrarButterfield Fund Services (Bermuda) Limited11 Rosebank CentreBermudiana RoadPembroke, Bermuda

Hong Kong branch share registrarTricor Secretaries Limited26/F, Tesbury Centre28 Queen’s Road EastWanchai, Hong Kong

Registered officeClarendon HouseChurch StreetHamilton HM 11Bermuda

Hong Kong head office43/F Enterprise Square Three39 Wang Chiu Road Kowloon BayKowloon, Hong Kongt + 852 2765 4321f + 852 2362 5576

Global business headquartersEsprit-Allee40882 RatingenGermanyt + 49 2102 123-0f + 49 2102 12315-100

For enquiries from investors and securities analysts, please contact:

Investor relations department43/F Enterprise Square Three39 Wang Chiu Road, Kowloon BayKowloon, Hong Kongt + 852 2765 4232f + 852 2362 5576e [email protected]

Contact person:Patrick LAUt + 852 2765 4232f + 852 2362 5576e [email protected]

Websitewww.espritholdings.com

Annual Report 09/10

Annual Report 09/10

Annual Report 09/10

CONTENT

01 INTRODUCTION01.1 Financial highlights 1201.2 Letter from Chairman 1801.3 Letter from Group CEO 20

02 KEY EVENTS 26

03 WHO ARE WE03.1 Quick facts about us 4003.2 Divisions overview 4203.3 Licensed products 44

04 MANAGEMENT DISCUSSION & ANALYSIS04.1 Revenue analysis 4804.2 Profitability analysis 5604.3 Balance sheet review 5704.4 Prospects 59

05 SUSTAINABILITY TO ESPRIT 63

06 CORPORATE GOVERNANCE06.1 Corporate governance report 7806.2 Report of the directors 85

07 FINANCIAL SECTION07.1 Independent auditor’s report 10007.2 Consolidated income statement 10107.3 Consolidated statement of comprehensive income 10207.4 Consolidated balance sheet 10307.5 Consolidated cash flow statement 10407.6 Consolidated statement of changes in equity 10507.7 Notes to the consolidated financial statements 107

08 TEN-YEAR SUMMARY 144

09 GLOSSARY OF TERMS 150

Annual Report 09/10

12

Annual Report 09/1001 // INTRODUCTION

01 .1 FINANCIAL HIGHLIGHTS

• Group turnover of HK$33.7 billion and net profit of HK$4,226 million• Retail turnover grew 9.3% year-on-year and total retail space increased 23.1% year-on-year• Continued strengthening of wholesale channel mix with franchise space increasing 6.3%

year-on-year, excluding China• Gross profit margin increased 2.6 percentage points to 54.7%• Cash and bank balances increased to HK$6.7 billion• Detailed and actionable plan of the Six Strategic Initiatives ready for implementation• Regular dividend payout ratio increased to 60% going forward• Targeting to at least double China turnover in five years’ time

Year ended30 June 2010


Turnover HK$33,734m HK$34,485mOperating profit HK$3,786m HK$5,729mNet profit HK$4,226m HK$4,745mEPS (Basic)^^ HK$3.35 HK$3.72

GP margin 54.7% 52.1%Operating profit margin 11.2% 16.6%Net profit margin 12.5% 13.8%

Average size of retail POS^ 344sqm 391sqmAverage size of wholesale POS^ 62sqm 59sqm

HK$ % of EPS** HK$ % of EPS*

Dividend per share– Regular interim paid 0.74 31% 0.80 21%– Proposed regular final 0.67 29% 0.72 19%

– Total regular 1.41 60% 1.52 40%

^ Calculated by dividing Esprit net sales area by number of POS as at 30 June 2010 and 30 June 2009^^ Earnings per share – basic for the year ended 30 June 2009 was restated to account for approximately 31 million scrip shares

issued on 15 January 2010. The basic earnings per share was restated as the scrip shares are treated as if the issue had oc-curred as at 1 July 2008.

* Calculated by dividing dividend per share by basic EPS, which excludes the impact of approximately 31 million scrip shares issued on 15 January 2010

** Calculated by dividing dividend per share by adjusted EPS. Please refer to page 58 for details of the calculation.

^ edc others include edc kids, edc shoes, edc accessories and edc bodywear* Others include salon, licensing income & licensed products like timewear, eyewear, jewellery, bed & bath, houseware, etc.

TURNOVER BY PRODUCTSHK$ million // % to Group turnover // % HK$ growth

casualcasual

women casual $11,623 34.4% -0.2%men casual $4,275 12.7% -0.5%

collectioncollection

women collection $2,398 7.1% 5.7%men collection $813 2.4% 7.2%

othersothers

accessories $1,603 4.8% -4.2%kids $1,035 3.1% -11.5%bodywear $990 2.9% 4.2%shoes $962 2.9% -27.2%sports $695 2.1% -16.9%de. corp $345 1.0% 10.7%red earth $36 0.1% 44.5%others* $830 2.4% -4.8%

edcedc

edc women $5,910 17.5% -2.2% edc men $1,253 3.7% -2.9% edc others^ $966 2.9% -5.0%

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Rest of EuropeRest of Europe

Switzerland $1,409 4.2% 12.3%U.K. $411 1.2% 1.9%Spain $295 0.9% 13.1%Italy $287 0.9% -20.5%Ireland $32 0.1% -47.5%Portugal $27 0.1% 60.1%Others $7 0.0% n.a.

FranceFrance $2,841 8.4% -9.3%

AustriaAustria $1,475 4.4% -2.0%

ScandinaviaScandinavia $1,464 4.3% -8.8%

# Country as a whole includes retail stores, outlet stores, edc standalone stores and e-shop## Germany sales includes wholesale sales to other European countries mainly Russia, Poland, Greece, Czech Republic and Croatia### Macau sales includes wholesale sales to other countries mainly China, Middle East, Chile, Thailand and India* Includes licensing** Includes salonn.a. Means not applicable

Australia and Australia and New Zealand New Zealand $976 2.9% 19.1%

Hong Kong**Hong Kong** $688 2.0% -6.7%

China**China** $793 2.4% n.a.

Rest of Asia PacificRest of Asia Pacific

Singapore $410 1.2% 2.7%Taiwan $261 0.8% -1.7%Malaysia $211 0.6% 0.2%

North AmericaNorth America

Canada $553 1.6% 13.2%United States* $526 1.6% 9.9%

MacauMacau###### $1,295 3.8% -24.9%

TURNOVER BY COUNTRIES#

HK$ million // % to Group turnover // % HK$ growth

GermanyGermany**#### $14,773 43.8% -4.4%

Benelux*Benelux* $5,000 14.8% -5.8%

# Retail sales includes sales from e-shop in countries where available

TURNOVER BY DISTRIBUTION CHANNELSHK$ million // % to Group turnover // % HK$ growth

Wholesale

$15,631 46.3% -12.7%

Licensing and others

$226 0.7% -1.1%

Retail#

$17,877 53.0% 9.3%

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Benchmark with HSI

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Jun 00 Jun 01 Jun 02 Jun 03 Jun 04 Jun 05 Jun 06 Jun 07 Jun 08 Jun 09 Jun 10

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Esprit 10-Year Share Price Performance

01.1 FINANCIAL HIGHLIGHTS (CONTINUED)

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0

20

40

60

80

100

3,737

5,180

6,450

4,745

4,226

2006 2007 2008 2009 2010

2006 2007 2008 2009 2010

Year ended 30 June

Profit Attributable to Shareholders (HK$ Million)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Year ended 30 June

Dividend Payment History (HK$ Per Share)

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1

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2.31

0.50

0.73

1.08

0.70

1.00

1.48

3.18

0.95

1.15

2.10

4.20

0.80

0.72

1.33

2.85

0.74

0.67

1.41

Regular interim Regular final Special

2006 2007 2008 2009* 2010^

Year ended 30 June

Dividend Payout Ratio (% of Basic EPS)

Regular Special

40%

35%

40%

35%

40%40%

35%40%

80%75% 75% 75%

60%

* Dividend payout ratio for the year ended 30 June 2009 is calculated based on EPS which exclude the impact of approximately 31 million scrip shares issued on 15 January 2010

^ Dividend payout ratio for the year ended 30 June 2010 is calculated based on adjusted EPS. Please refer to page 58 for details of the calculation

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01.1 FINANCIAL HIGHLIGHTS (CONTINUED)

Breakdown of group turnover

Year ended 30 June

2010 2009^ 2008^ 2007^ 2006^

Operation mix (%)Retail 53 47 43 43 41Wholesale 46 52 56 56 58Licensing and others 1 1 1 1 1

Geographical mix (%)Europe 83 85 87 86 85Asia Pacific 14 12 11 11 12North America and others 3 3 2 3 3

Product mix (%)women casual 34 34 34 36 37men casual 13 12 12 11 10edc women 18 17 19 18 16edc men 4 4 3 2 2women collection 7 7 6 6 7men collection 2 2 2 2 2accessories 5 6 5 5 5kids 5 5 5 6 7shoes 3 4 5 5 5bodywear 3 3 3 3 3sports 2 2 3 3 3de. corp 1 1 – – –red earth – – – 1 1others* 3 3 3 2 2

* Others include salon, licensing income & licensed products like timewear, eyewear, jewellery, bed & bath, houseware, etc.^ Turnover by geographical segment for the years ended 30 June 2006 to 30 June 2009 were restated for comparison purpose as

a result of the adoption of the new IFRS 8 ”Operating Segments”

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01.2 LETTER FROM CHAIRMAN

Dear Shareholders,

This year is my first time addressing you as your Non-Executive Chairman. I relinquished my role as an Executive Director with effect from 30 June 2010.

Group turnover and net profit were impacted by the slow consumer environment and decreased to HK$33,734 million and HK$4,226 million, respectively. Nonetheless Esprit is focused on the future and our ambitions for our Company remain high. Despite the business environment remaining challenging for the past year, we recorded satisfactory results whilst undertaking a series of Strategic Initiatives and investments aimed at strengthening the platform of the Group for another phase of significant growth. With a view to minimising inefficiency and to focusing our efforts on locations where we can improve financial performance and customers experience, we decided to close 33 loss making stores after a comprehensive review of our directly managed stores portfolio.

One key milestone of this year is the buyback of our remaining 51% equity interest in the China joint venture. China presents great strategic value to Esprit and we are proud that Esprit is now truly globalised and moving to a more evenly balanced geographic portfolio through an increasingly strong and growing presence in Asia Pacific. The growth dynamics

HEINZ KROGNER // CHAIRMAN

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of the Group will forge ahead through a strategic expansion of China which will become Esprit’s new growth engine. The deal was partly financed by a self arranged bank loan which was substantially oversubscribed by the banking community. Such overwhelming support showed the banks’ belief in the Group’s financial status. The loan also helped maintain our cash balance for other uses. While progressing our strategic and operational priorities, we continued to enhance shareholder value. Our cash position remained very strong with cash and bank balances of HK$6.7 billion as at 30 June 2010. The Board of Directors has proposed to declare a final dividend of HK$0.67 per share (2009: HK$0.72), increasing the regular dividend payout ratio from last year’s 40% to 60% going forward as a testament of our commitment to share our success with shareholders. With the introduction of the dividend reinvestment scheme, we allow shareholders the opportunity to increase their investment in Esprit without incurring administrative fees and would also allow us to maintain a stronger cash position for our future growth.

Bearing in mind the objective to create shareholder value, we further widen the shareholder base by capturing untapped investors with the establishment of a Level 1 sponsored American Depositary Receipt (“ADR”) programme in November 2009. The amount of outstanding ADRs has jumped substantially by over 40% in June 2010 since the launch in November 2009. We are confident that our shareholder base will continue to expand internationally, benefiting from the ADR program which facilitates trading of Esprit shares in the US financial markets.

As the Chairman of the Board, I am pleased to have a very strong board. I would like to take this opportunity to congratulate Mr. Paul Cheng, our Deputy Chairman, who was awarded the “Director of the Year Award” in the Hang Seng Index Constituents – Non-Executive Director category by the Hong Kong Institute of Directors. Our teams and people around the world remain the most important ingredient of the Company’s success, which is demonstrated by the numerous awards received during the year from various parties including corporate governance, annual reports and investor relations awards. In an effort to develop, maintain and incentivise our talents, a new Share Option Scheme has been established to strengthen performance orientation. We believe stronger linking of incentives to individual’s performance is required to boost the entrepreneurial spirit and will translate into more target-oriented decision making in order to achieve company objectives.

Beyond commercial activities, as you can read from our corporate responsibility section, Esprit will not forget to give back to the community. I am proud to report that the Group is continuing to embed “sustainability” in the business processes and carry on its commitment through programs such as SOS Children’s Villages, Community Chest and donations to the Qinghai Earthquake.

Looking forward, although the economic conditions are improving, the road to full recovery is still uncertain and there remains the risk of further volatility in the global economy. However, I believe that with our teams’ passion, adaptability and drive, the prospect of Esprit is only going one way – brighter and better.

Heinz Krogner // Chairman 2 September 2010

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macro-economic environment. Gross profit margin showed a significant improvement of 2.6 percentage points to 54.7%, which is attributable to the shift in channel mix and the improvement in both wholesale and retail gross profit margins. Our financial strength continued to improve with net cash inflow from operating activities growing 2.7% year-on-year to HK$5.4 billion and a strong net cash position at 30 June 2010 of HK$6.7 billion despite the HK$3.88 billion acquisition price for our China operations. Year-on-year, inventory and net trade debtors balances dropped 18.1% and 21.4% respectively, and inventory turnover days were shortened by 2 days to 63 days. Our continued strong balance sheet equips us for sustainable future growth.

Although wholesale turnover declined 12.7% to HK$15,631 million, the financial performance of the wholesale business was in line with management expectations. Customers remained cautious and conservative in placing orders. We have lost some of the customers who could not survive the turbulent financial crisis and became insolvent. In addition, we actively rationalised our wholesale customer base and grew our franchise sales area with 6.3%, excluding China. As a result and in line with our strategic direction, the quality of our wholesale channel was strengthened, which is in the long-term beneficial to the brand and our operational efficiency.

Since joining Esprit, I have reviewed different aspects of the Group’s operations. Whilst I am proud and privileged to have inherited a strong company and brand, it is my belief that in order to become a truly global brand and company, we need to strengthen certain aspects of our business. As such, I have informed you about our Six Strategic Initiatives during the interim results announcement. Over the past six months, dedicated work teams have been set up for each initiative and we have started our first phase “Building a strong platform for profitable growth” of our long-term plan focusing on creating a truly global brand and company. Whilst Esprit is well-established internationally, there is still tremendous potential to grow our business globally in the coming years. The acquisition of the remaining shares in our joint venture in China has helped and will help us further in growing globally. China represents the biggest growth opportunity for Esprit and we are determined to expand our leading position in the Chinese market.

Our brand, Esprit, is our most valuable asset and enhancing our brand equity is definitely one of our priorities. We will sharpen the positioning and profile of the brand based on the great and unique heritage of Esprit. This will have a visible impact on all “touch points of the brand”, from our products, to our stores and our communication with our customers. As part of this process to create a more inspirational shopping environment, we will upgrade our visual merchandising by changing the mannequins in our stores and shop windows and changing our instore visuals more frequently. We will continue investing in brand building flagship stores around the world. During this fiscal year, new flagship concepts were opened in Hong Kong and New York. Our biggest store in the world will soon be opened in Frankfurt.

Quality comes first in our products and this is part of the Company’s DNA. With the implementation of brand books, a cross-divisional alignment and the global retail line concept, we will be able to streamline our collection building process towards the needs of our various target customer groups and to better ensure product differentiation and newness. An additional Chief Product Officer for the Esprit divisions was hired to co-lead this process. As part of this initiative, we have identified opportunities to grow in underpenetrated product segments like denim. We will also extend our shoes and accessories offering in our retail stores.

01.3 LETTER FROM GROUP CEO

RONALD VAN DER VIS // GROUP CEO

Dear Shareholders,

In a challenging year with a difficult economic climate, it is even more important a company can demonstrate its strength and flexibility in weathering the effect of the adverse external environment. Esprit continues to prevail in many respects. During the year our retail business continued to achieve good growth whilst our cash flow position remains robust. At the same time, we recognise it is inevitable that some changes to the Group are necessary to ensure we strengthen our foundation to be able to capture the future growth potential of the brand.

During the reporting year, our retail turnover grew 9.3% to HK$17.9 billion and total selling space, wholesale and retail combined, increased 2.1% or 23,144 m2 year-on-year despite the challenging

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As part of our third initiative, focusing on improving our channel and country profitability, we have redefined our store selection and approval policy and added skills and capabilities to the expansion team. This will lead to a better and faster expansion of our store network. After a comprehensive review of our existing store portfolio, we have decided to exit Norway and Portugal and to close down 33 loss-making stores worldwide with closure costs amounting to HK$793 million and HK$303 million in impairment primarily for other stores. As a result, it is inevitable that our financial results were impacted by such exceptional events. Our operating profit and operating profit margin would have been HK$4,905 million and 14.5% (reported operating profit: HK$3,786 million and reported operating profit margin: 11.2%) and our retail EBIT margin would have been approximately 10% (reported retail EBIT margin: 3.8%), if we exclude the impact from such exceptional items. Going forward, our expansion will be accelerated in a focused way, with a clear priority for China.

In order to continue building our brand and strengthening our product offering, it is important to continuously add value to our products for our customers. Reducing our cost of goods sold is important to enable us to keep injecting value into our products. In the past we did not always use the full leverage of our Company when executing our sourcing and supply chain activities due to our divisional set-up. As part of this initiative, we successfully carried out a pilot to consolidate sourcing for T-shirts from over 120 suppliers to less than 20 suppliers to test the potential cost savings. The pilot was successful and is in the process of being rolled-out to other product categories. In addition to this portfolio consolidation process, we have developed a new medium-term sourcing strategy which also aims at optimising our sourcing footprint globally.

Our “Best-in-class Support” initiative ensures our support functions are strong and equipped to accommodate the growth scenario envisioned and we continue pursuing our goal to be recognised for operational excellence. To improve quality of management decision-making, we introduced a set of new global management reporting. The SAP/EPS project has been reassigned under the CFO’s area of responsibility and I am delighted to see it is progressing on schedule and already gone live in some of our European markets for the first division with promising results. To ensure we will have the right management skills and resources in our organisation to achieve our growth ambitions, a new, comprehensive HR strategy and Talent Management program has been developed. Last but not least, we have implemented a worldwide restructuring to ensure that the corporate structure is more streamlined, in keeping with tax regulations and to achieve better operational and effective cash management.

Finally, our last initiative was launched with the objective to optimise our organisational structure with clear roles and responsibilities. In light of our vision to become a truly global Company and brand, we will transform our sales organisation from a regional, geographical set-up to a global, channel-based one. This will strengthen the brand and ensure consistent execution of our proven multi-channel concept

globally. The global retail organisation was strengthened with a new Chief Retail Officer, Retail COO and Global Expansion Manager with the clear target to increase our retail profitability and accelerate our retail expansion.

We need to keep our momentum in investing in our infrastructure for further potential growth. Our planned capital expenditure for the Group amounts to HK$2.19 billion for FY 2010/11, of which HK$1,144 million will be invested in new store openings as well as expansion and refurbishment of existing stores. In addition, the successful implementation of the SAP/EPS project is vital to the development of the Group. HK$514 million is budgeted to be invested in IT projects this financial year.

Nevertheless, our brand has proven to be strong and our multi-channel strategy is working well under these challenging circumstances. As part of the Six Strategic Initiatives launched, many efforts are ongoing to strengthen our foundation for growth and profitability to support our global ambitions. I am very pleased with the progress we have made during the last six months. I like to thank everybody involved in these works streams as they helped to shape the future of Esprit. More generally, I like to thank all employees of Esprit around the world for their continuous efforts and contributions to building this Company together.

I believe a successful company like Esprit must continue to enhance transparency in its reporting to its stakeholders. We have continued to keep investors appraised of our latest sales trends via our voluntary quarterly sales updates and providing a glossary of terms commonly used within Esprit to help investors and shareholders understand our business better. We will continue to maintain a pro-active investor relations program to ensure we communicate with our shareholders on a timely basis. I am confident with a committed management team and their expertise in the sector, we can build a better and bigger Esprit.

Lastly, I like to thank our Chairman and former CEO, Heinz Krogner, for the good cooperation and smooth transition leading to his succession on 1 November 2009.

Ronald Van Der Vis // Executive Director and Group CEO 2 September 2010

Annual Report 09/10

Annual Report 09/1002 // KEY EVENTS

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GRAND OPENING 34TH STREETNew York

With a long line of people waiting to get in, on one of the busiest shopping avenues in the world, Esprit 34th Street celebrated its grand opening on Tuesday, 23 March 2010 with a sneak peek VIP celebration.

More than 600 celebrities, socialites and fashion elite turned up for the grand opening of the new store. In addition to checking out the updated look and feel of the new Esprit store, guests were treated to an exclusive performance by Grammy award winning artist, Macy Gray. With a new album coming out this summer, Macy treated the crowd to a performance of her not-yet-released new single “Beauty in the World.”

Among the celebrities that came out to check out the new store were actresses Jennifer Love Hewitt, Emmy Rossum and Alexis Bledel, stylist and TV personality Robert Verdi, stylists Amanda Ross and Erin Lucas, MTV Reality stars Paula Meronek, Kenny Santucci, Evan Starkman, Ryan Kehoe, Meredith Melling Burke, Lesley Schulhof, Elizabeth Meigher and Phoebe Gubelmann, among many others.

STORE OPENINGS

Macy Gray performed at the 34th Street opening.

Jennifer Love Hewitt, Emmy Rossum and Erin Lucas attended 34th Street grand opening in New York.


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SECOND CONCEPT STORE Tsim Sha Tsui, Hong Kong

The new flagship store on Peking Road in Hong Kong is featured with its never before seen façade. It fits right into the exclusive shopping district in Hong Kong.

FIRST CONCEPT STOREOldenburg, Germany


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Store openings

Australia Sydney Double BayMelborne Chadstone

Austria Villach AtrioInnsbruck Kaufhaus Tyrol

Belgium Hasselt Grote MarktKortrijk SteenpoortBruxelles Toison d’OrWoluwe Saint-Pierre Stockel Square

Canada Alberta Cross IronChina Shanghai New World Department Store,

Bailian, Golden SquareBeijing Cuiwei, Guotai,

New World Department StoreGuangzhou Wanguo PlazaDalian Sunrise Shopping Centre

Denmark Greve Hundige StorecenterKolding Kolding Storecenter

Finland Vantaa HelsinkiFrance Reims Rue de Vesle

St. Genevieve St. GenevieveBry Sur Marne Centre commercial les Armoiries

Germany Berlin Karl-Marx-StrasseKöln Hohe StreetEssen Limbecker PlatzMünster StubengasseOffenbach Frankfurter StreetWürzburg BarbarossaplatzNürnberg KarolinenstrasseMunich OEZLeverkusen Friedrich-Ebert-Platz 2Pforzheim Karl-Friedrich-Str.Hamburg EKZ Hamburger Strasse,

Bergedorf, ElbeEZHong Kong Tsim Sha Tsui Peking RoadIreland Dublin Arnotts, Dundrum CentreNetherlands Hilversum Kerkstraat

Eindhoven WoensXLRotterdam Oude

New Zealand Auckland Smith & Caughey’sSingapore Orchard Road 313 Somerset

Changi Airport Terminal 1Spain Barcelona Porta del AngelSweden Sollentuna Sollentuna CentrumSwitzerland Basel Stücki

Morbio Inferiore SerfontanaSant Antonio Centro MigrosUster GerichtsstrasseSt Gallen MultergasseMarin-Epagnier Marin Centre

Taiwan Tao Yuan Mitsukoshi, Tai MallTaipei Jing Jan Shopping MallKaohsiung Mitsukoshi, RT Mart

United Kingdom Gloucestershire, Croydon, House of FraserHuddersfield, Hull,Milton Keynes, Solihull,Shrewsbury

United States Philadelphia Walnut StreetNew York City 34th StreetFlorida EllentonAtlantic City Atlantic City OutletsMassachusetts Wrentham Village Premium OutletsOregon Woodburn company stores


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ACQUISITION OF THE REMAINING STAKE IN CHINA

Esprit announced the acquisition of the remaining interest in the China joint venture from China Resources Enterprise on 17 December 2009. The deal was closed on 12 February 2010 with payment partly financed by a loan facility well participated by banks and on very favourable terms, demonstrating our strong reputation and the confidence of the banking industry in Esprit. The integration and future business plan is currently being finalised.

This is an important development for the Group as China is one of the biggest and fastest growing apparel markets in the world. China represents a new growth engine for Esprit.

THE ASSET PLATINUM AWARD 2009

Popularly subscribed and respected by institutional investors world-wide, The Asset magazine’s Excellence in Management and Corporate Governance Awards was determined on a more stringent standard than ever before this year. The Platinum Award which Esprit has been awarded is a recognition of our strong financial performance whilst operating in a responsible and transparent manner against the backdrop of a harsher economic environment.

FINANCE ASIA AWARDS 2010

Esprit has been awarded “Best Investor Relations in Hong Kong (ranked 6th)” and “Best Mid-Cap in Hong Kong (ranked 2nd)” by the Finance Asia magazine. The magazine is one of the foremost information sources for the Asian financial markets and its awards are an industry benchmark.

BCP BEST OF CORPORATE PUBLISHING AWARD 2009

Esprit was ranked in the top five in the “Specials, Corporate Book “ category of the BCP Awards 2009 for the “Celebrate Together” anniversary book. We were very happy to receive the silver award.

DONATION TO THE COMMUNITY CHEST

As a socially responsible company, Esprit takes pride in its contribution to the community. The Esprit Cares Trust donated HKD1 million to The Community Chest’s Corporate and Employee Contribution Programme which will benefit a wide spectrum of social services for those in need in the community.

NEWSBEST BRANDS 2010

Esprit was the only representative from the fashion industry ranked in the top ten in the “Best Product Brand” category of the Best Brands 2010 awards!

The awards were based on the results of a Germany-wide representative consumer study, compiled by market research organisation GfK. A total of 214 brands were nominated. Only successful companies with high brand awareness and significant market share, as well as a positive image and great potential for the future were included in the category “Best Product Brand”. Brand success was measured in terms of customer loyalty, “share of soul”, and the awareness and cross-selling potential of the brand.

We are thrilled at our successful placing in the Best Brands 2010 awards. The consumer study evidenced the confidence in the strength and long-term future potential of the Esprit brand, above and beyond financial success. Esprit is and will continue to be one of the most successful global brands.

DIRECTOR OF THE YEAR AWARDS 2009

Our Deputy Chairman, Paul Cheng, has been awarded the “Director of the Year Award” in the Hang Seng Index Constituents – Non-Executive Director category by the Hong Kong Institute of Directors.

The Hong Kong Institute of Directors is Hong Kong’s premier body representing professional directors working to promote good corporate governance. The Director of the Year Award recognizes outstanding directors for their practices and corporate governance.


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MEN’S HEALTH BEST FASHION AWARD 2009

Following on from its successes in 2006 and 2007, Esprit men casual received the ”Best Fashion Award 2009“ from the magazine Men‘s Health for the third time. 11,500 Men‘s Health readers and Best Fashion users voted for their favourite brands in six categories – business, designer, casual, underwear, jeans & streetwear and outdoor. Esprit men casual was voted the winner in the category ”Best Casual Brand”, ahead of brands like Boss and Lacoste.

HELP FOR CHILDREN IN HAITI

Esprit expresses its heartfelt sympathy to the people, families and particularly the children affected by the earthquake in Haiti.

An international fundraising campaign was hosted on 23 January 2010 in Esprit retail stores: for each purchase, Esprit donated one euro to the victims of the Haiti earthquake.

A total of EUR115,000 was raised for SOS Children‘s Villages Haiti. With this donation we are able to assist aid workers on the ground, as well as ensure the long-term well-being of children in Haiti. Providing psychological help to children who may have been traumatised or orphaned is of particular importance, as is providing them with safe accommodation and help searching for any remaining relatives.

DONATION TO QINGHAI EARTHQUAKE

On 14 April 2010, an earthquake measuring magnitude 6.9 Mw hit the Qinghai area of China, killing over 2,000 people and leaving more than 12,000 injured. The powerful tremor destroyed buildings and caused landslides, which cut off many roads. Esprit expresses its deepest sympathy to those affected by this tragic event. In our efforts to aid the affected persons in Qinghai, Esprit Cares Trust donated RMB1 million to the Qinghai earthquake through the Red Cross.

MORAKOT TYPHOON RELIEF DAY CAMPAIGN

The Morakot typhoon wrought catastrophic damage in Taiwan on 8 August 2009. Esprit Taiwan launched the “Morakot Typhoon Relief Day” campaign on 16 August 2009. NT$300 was donated to the Red Cross, ROC for every item sold at the stores and counters in Taiwan and raised NT$1.3 million on that day. Esprit Group donated another NT$2 million, making a total of NT$3.3 million to help the victims in the disaster area.


32

IN SPRING 2010 ESPRIT IS LAUNCHING A GLOBAL CROSS-MEDIA CAMPAIGN IN 23 COUNTRIES: ‘The Spirit of 68’, which provides the inspiration for a new way of presenting the Esprit lifestyle. Selected key outfits will be modelled by the top models and It girls of the moment in an authentic and contemporary manner. In the spotlight for the spring presentation are Daisy Lowe for edc by Esprit and Julia Restoin- Roitfeld for Esprit women casual. At the start of the campaign and during the first half of 2010, Esprit will place advertisements in international premium and high-circulation media outlets, accompanied by Out of Home media as well as direct marketing activities. Promotions linked to the campaign will be set up at the point of sale, including in-store catalogues and window displays based on the campaign. In addition, there will also be a comprehensive range of online communication activities aimed at reaching Esprit customers and fans. Mailings will provide information on the key styles of the month and an electronic magazine will be provided on the Esprit website www.esprit.com complete with material from behind the scenes. Links to the e-shops and posts on the brand’s social network profiles containing all the latest news complete the digital implementation of the campaign. This campaign was developed by Esprit’s in-house marketing department and realised in cooperation with Redwood, London. For the spring/summer shoot, which was inspired by the Esprit campaigns of the early 1990s, Julia Restoin-Roitfeld was photographed

in a group of models in the Californian desert. With her were Ragnhild Jevne, a top model from Norway, and the Brazilian model Juliana Imai. On the men’s side, there were Andrew Cooper, Allen Tsai and Travone Hill.

For edc by Esprit, the English It girl and model Daisy Lowe posed in front of the camera next to male model and rock musician Will Cameron. Sam Way and Ash Stymest completed the stylish team. The group presents the attitude to life that is typical of the edc by Esprit brand, one that is characterised by youth and music culture. The Dutch model Kim Noorda, on the other hand, showcased the sophisticated and reduced style of the de.corp range. The faces of the Esprit Collection line this spring are top models Leticia Birkheuer and Jon Kortajarena, winner of the GQ award for best model of the year 2009, and actor in the Tom Ford film “A Single Man”. The images from the spring shoot will kick off the new season at the beginning of 2010. From June onwards, additional summer motifs for Esprit Casual, Esprit Collection and edc by Esprit will lend fresh visual impetus to the campaign. The additional shoot for high summer took Esprit to the beaches of Cape Town. Those involved included American top model Missy Rayder, Russian model Anne V, and Du Juan, currently one of the most popular faces in China. The men’s side was taken care of by the Briton Andrew Cooper and US model Nate Gill. Daisy Lowe not only left her footprints in the sand for edc by Esprit, but also provided some unique motifs for the summer months. Danish model Louise P and, again, Jon Kortajarena are the Esprit Collection couple for high summer.

THE SPIRIT OF 68 – THE ESPRIT 2010 SPRING AND SUMMER CAMPAIGN


33

VOGUE & ELLE IN TAIWAN

Esprit Taiwan published a series of page spread advertorials in the April edition of Vogue and the May edition of Elle to promote our new trends and arrivals to a targeted readership base.

We were also able to negotiate an extra six pages in the supplements Elle Girl, Fashion Map Magazines, Vogue Angel and Elle Chic Mommy.


34

RED DOT AWARD FOR ESPRIT HOME

With its outstanding and innovative design, cushion covers Beat by Esprit home managed to impress the jury of one of the most prestigious international design competitions. In the “red dot award: product design 2010” the Beat cushion covers were awarded the “red dot” quality label for high design quality by the jury consisting of top-class experts.

The festive awards presentation with more than 1,000 guests took place in the Essen opera house, the Aalto-Theater, on 5 July 2010. In Essen, Germany, the 2010 European Capital of Culture, the product will then be presented in a four-week special exhibition at the red dot design museum at the Zollverein colliery.

ESPRIT HOME


35

ROBA – WELCOME TO THE KIDS WORLD!

Roba Baumann GmbH, specialist for furniture systems for babies and children, is the newest member of the Esprit license partner team. On the international furniture fair 2010 in Cologne, Roba presented three new room concepts for the age group 0 to 12 years.

From April 2010 onwards, young families can buy a new Esprit modular concept based on the motto “Colour Furniture“ with “Natural Harmony“ for harmonised, basic rooms and “White Spirit“ for designer interiors. The new Esprit worlds will be available from specialised dealers and furniture dealers as well as from selected internet suppliers in Germany, Austria and Switzerland as well as in Spain, Hungary and other European countries.

PARADOR – WELCOME TO THE ESPRIT HOME FAMILY!

The focus of the 2010 is a new aspect of the living area. Esprit home flooring is now offering high-quality real wood parquet in different structural designs as well as laminate flooring in eye-catching colours and patterns to match the individual living motifs, always bearing the Esprit signature. Esprit home flooring‘s real wood parquet flooring includes modern planks that are incredibly convenient to use. Laminate planks are available in two different sizes.

ESPRIT HOME SCOOPS PRIZE

Esprit Home wallpaper – Wallpaper of the Year 2009


36

ESPRIT COLLECTION TIMEWEAR & JEWELLERY

The European launch of Esprit collection timewear and jewellery was held above the rooftops of Munich in the Sky Lounge at the Inhorgenta trade fair.

The launch was attended by around 300 guests, including over 40 journalists, four TV teams from Austria and Germany, and several VIPs. The impressive location, ambience and presentation of the timewear and jewellery line were set off by a live performance of first-class soul pop from London singer and “BBC Newcomer 2010” Rox.

Rox performed at the launch.

Jana Ina Zarella, Monica Ivanca, Harry Brand and wife, Doreen Dietel, Stefan Gödde and Katja Flint attended Esprit collection timewear and jewellery launch in Munich.


37

ESPRIT IMAGINE

Imagine something different and unexpected. A fragrance that unlocks the imagination. A fragrance full of possibilities.

Coty, Esprit’s license partner for fragrances for many years, launched the new duo concept in March. ‘Esprit Imagine’ for her and for him are fragrances that awaken the imagination and stir the senses.

The unique box and bottle design perfectly conveys the idea of imagination. At first glance, the bottle seems to be a clear square of glass. But the wave at the bottom is actually hollow, evoking the idea of fluidity. The cut-out section at the base of the bottle is linked to the glass by a line of thin metal.

The successful market launch was supported by print and TV campaigns as well as various in-store promotions in March and April.

ESPRIT LUGGAGE

Esprit launched a new license product line in May. With Esprit luggage, it is now possible not only to travel in the Esprit spirit of ‘the world is our culture’, but also to do so with the well-established Esprit look.

Esprit granted its new license to Happy Rain Würflingsdobler GmbH, which has been a highly successful partner for Esprit umbrellas for many years and which is also a specialist in luggage.

The textile series ‘SuperLight’ and ‘Silence’ and the hard-shell line‚ ‘Polycarbonate’ combine practical elements, the highest level

of quality and comfortable handling with typical cutting-edge Esprit design.

In addition to classic travel luggage, such as rolling suitcases in various sizes, rucksacks, travel bags, beauty cases and toilet bags, the line also offers business solutions including messenger bags, laptop bags and pilot cases. It also provides intelligent travel accessories, such as transparent cosmetic bags for liquids, sleep masks, travel pillows, belt and shoulder bags for valuables and luggage straps.

Classic colours in the Esprit colour code, such as violet, red, khaki, brown and black, ensure a stylish look at the airport or railway platform in any of the world’s great cities.

LICENCES

38

Annual Report 09/1003 // WHO ARE WE

39


Annual Report 09/10

40


03.1 QUICK FACTS ABOUT US

41


Constituent stock of Hang Seng Index, MSCI Hong Kong Index, FTSE All·World Index for Hong Kong, S&P/HKEx LargeCap Index and S&P Asia 50 Index · Turnover mix: Europe 83%, Asia Pacific 14%, North America and others 3%; Retail 53%, Wholesale 46%, Licensing and others 1% · Design building blocks: Brand book, Colourcards, Concept meetings, Prototype meetings · 1,123 directly managed stores (419 in Europe, 622 in Asia Pacific including 288 in China, 82 in North America) · 12,191 Esprit wholesale POS (11,115 in Europe, 1,076 in Asia Pacific including 643 in China)

Founded by Susie & Doug Tompkinsin 1968

Listed in Hong Kong since 1993

Over 14,100 employees12 product divisions

e-shop in over25 countries

12 seasons per year

Stock code 00330

42


03.2 DIVISIONS OVERVIEW

We have 12 product divisions, each with a dedicated team to cater to the respective unique customer group and create up to 12 seasons for each division so that we only deliver the most desired products. All of these are supported by a well-defined product development structure.

Esprit casual

Fashion InterestBrowsingCasual & LeisureFamily & FriendsPractical & Comfort

Esprit collection

Dressed upQuality & DetailsProfessional & OccasionsFeminine styleSophisticated

de.corp ESPRIT URBAN CASUAL

ModernStylishIndividualisticForwardOpen to change

43


edc by Esprit

Latest FashionShopaholicCool & SexyInvolved Young

ESP Esprit sports

Complete, functionally inspired sport-lifestyle programme divided into five theme worlds:“fitness/wellness/training”, “urban adventure”, “sun/fun/beach”, “winter/snow/arctic” and “lifestyle/sports”

Esprit kids

The latest trends interpreted in children’s fashions ranging from Newborns to Minis

44


THE BABIES & KIDS’ WORLD

Starting with a full line of contemporary maternity wear, the Esprit babies’ and kids’ world includes strollers, baby carriages, nursery bags, cute blankets, cushions and comforters as well as adorable stuffed animals and activity toys.

The babies’ and kids’ assortments also offer baby furniture, bed linen, bedding, baby sleeping bags and other baby home textiles, socks, carpets and wallpaper, kid’s jewellery and watches, optical glasses and sun glasses, umbrellas and school products.

Affectionately designed with a focus on highest quality and adorable details, this range offers everything young families are looking for.

THE HOME WORLD

The lifestyle concept of the Esprit philosophy also encompasses an interior design programme with lifestyle products for different areas of life.

The Esprit home world offers distinct interior products that focus on contemporary design, natural materials and sophisticated details that will give any home the right atmosphere.

The range comprises furniture, bathroom furniture, wallpaper, lighting, carpets, home accessories & table-top, bed-linen, bedding and home textiles, as well as a complete Esprit home bath concept.

03.3 LICENSED PRODUCTS

THE LIFESTYLE ACCESSORIES WORLD

The lifestyle philosophy is key for Esprit: with an ever-growing product portfolio the typical Esprit feeling is conveyed to many different areas and meanwhile applies to much more than just clothes.

Each fashion line is completed by a large variety of matching accessories, including timewear and jewellery, eyewear, socks & tights, stationery and even umbrellas, all featuring the typical Esprit style, combining modernity, confidence and sensuality.

A fantastic selection of different fragrances and beauty and cosmetic products adds even more diversity to the Esprit lifestyle accessories world.

45


Key licensed product categories

As at 30 June 2010

EuropeAsia

PacificNorth

AmericaLatin

America

Accessories’ World

costume jewellery ■ ■

cosmetics ■

eyewear ■ ■ ■ ■

fragrance ■ ■ ■

jewellery ■ ■ ■

luggage ■

outerwear ■ ■

shoes ■

sleepwear/daywear ■

socks + tights Esprit ■ ■ ■ ■

stationery ■ ■

timewear ■ ■ ■ ■

umbrellas ■ ■ ■ ■

Home World

bathroom ■ ■

bedding ■ ■ ■ ■

carpets ■ ■

down ■ ■

flooring ■ ■

furniture ■ ■

glassware ■ ■

home accessories ■ ■ ■

lighting ■ ■

towels ■ ■ ■ ■

wallpaper ■ ■

Babies’ & Kids’ World

baby carriages ■ ■

baby furniture ■ ■

childrens furniture ■

kids’ bedding ■

kids’ shoes ■

maternity ■ ■

school ■ ■

soft toys ■

46

Annual Report 09/1004 // MANAGEMENT DISCUSSION & ANALYSIS

47


Annual Report 09/10

48


Despite the tough macro environment, the Group continued to achieve good results in delivering 9.3% retail turnover growth, improvement in gross profit margin and expanding total selling space by 2.1% or 23,144 m2 year-on-year (wholesale and retail channels combined) to over 1,145,000 m2 as at 30 June 2010. The cash position remained very strong with cashflow from operating activities growing by 2.7% year-on-year. The Board of Directors has proposed a final dividend of HK$0.67 per share (2009: HK$0.72 per share) and increasing the regular dividend payout ratio from 40% to 60% going forward, as a testament of our commitment to share our success with shareholders.

04.1 REVENUE ANALYSIS

For the year ended 30 June 2010, the Group generated turnover of HK$33.7 billion (2009: HK$34.5 billion), representing 2.2% year-on-year decline in HKD or 4.4% year-on-year decline in local currency. Group turnover declined mainly due to the decrease in wholesale turnover, partially compensated by an increase in retail turnover. Total estimated brand sales value of Esprit products worldwide for the year ended 30 June 2010 is estimated to be HK$60.1 billion*.

70

60

50

40

30

20

10

0

46%

53%

60%

30%

10%1%

Licensing & Others Retail

Reported turnoverHK$33.7bn

Brand salesHK$60.1bn

Year ended June 30

Wholesale

% to Group turnover // turnover in HK$* Management estimate – converting wholesale and licensing revenue to retail sales value

49


Turnover by Countries

Year ended 30 June 2010 Year ended 30 June 2009^ Change in %

Countries# HK$ million% to Group

Turnover HK$ million% to Group

Turnover HK$Local

currency

Europe 28,021 83.1% 29,363 85.1% -4.6% -6.2%Germany*## 14,773 43.8% 15,454 44.8% -4.4% -6.0%Benelux* 5,000 14.8% 5,308 15.4% -5.8% -7.1%France 2,841 8.4% 3,133 9.1% -9.3% -10.5%Austria 1,475 4.4% 1,506 4.4% -2.0% -3.7%Scandinavia 1,464 4.3% 1,605 4.6% -8.8% -10.9%Switzerland 1,409 4.2% 1,254 3.6% 12.3% 6.6%United Kingdom 411 1.2% 403 1.2% 1.9% 2.6%Spain 295 0.9% 261 0.8% 13.1% 12.7%Italy 287 0.9% 361 1.0% -20.5% -22.0%Ireland 32 0.1% 61 0.2% -47.5% -47.6%Portugal 27 0.1% 17 0.0% 60.1% 54.3%Others 7 0.0% – 0.0% n.a. n.a.Asia Pacific 4,634 13.7% 4,155 12.1% 11.5% 5.9%Macau### 1,295 3.8% 1,724 5.0% -24.9% -27.3%Australia and New Zealand 976 2.9% 819 2.3% 19.1% -0.1%China** 793 2.4% – – n.a. n.a.Hong Kong** 688 2.0% 738 2.2% -6.7% -6.7%Singapore 410 1.2% 399 1.2% 2.7% -1.5%Taiwan 261 0.8% 265 0.8% -1.7% -3.2%Malaysia 211 0.6% 210 0.6% 0.2% -3.0%North America and Others 1,079 3.2% 967 2.8% 11.6% 6.5%Canada 553 1.6% 489 1.4% 13.2% 3.1%

United States* 526 1.6% 478 1.4% 9.9% 10.0%

Total 33,734 100.0% 34,485 100.0% -2.2% -4.4%

# Country as a whole includes retail stores, outlet stores, edc standalone stores and e-shop## Germany sales includes wholesale sales to other European countries mainly Russia, Poland, Greece, Czech Republic and Croatia### Macau sales includes wholesale sales to other countries mainly China, Middle East, Chile, Thailand, and India* Includes licensing** Includes salonn.a. Means not applicable^ Turnover by countries for the year ended 30 June 2009 were restated for comparison purpose as a result of the adoption of the new IFRS 8 “Operating Segments”

Regionally, Europe continued to account for majority of Group turnover but its turnover proportion to Group turnover declined to about 83%. Europe turnover also recorded year-on-year decrease of 6.2% in local currency mainly due to continued weakness in wholesale sales.

As a result of the acquisition of the remaining interest of the China Joint Venture (“the China acquisition”), the contribution of Asia Pacific to Group turnover increased to approximately 14%. Asia Pacific also saw 5.9% local currency turnover growth.

Benefiting from retail space expansion in the United States, North America delivered the highest local currency turnover growth amongst the three regions of 6.5% and saw a small increase in its contribution to Group turnover.

50


Turnover by Products

Year ended 30 June 2010 Year ended 30 June 2009 Change in %

Product Divisions HK$ million% to Group


Turnover HK$Local

currency

casual 15,898 47.1% 15,948 46.2% -0.3% -1.7%women casual 11,623 34.4% 11,651 33.8% -0.2% -1.6%men casual 4,275 12.7% 4,297 12.4% -0.5% -1.9%edc 8,129 24.1% 8,352 24.2% -2.7% -3.9%edc women 5,910 17.5% 6,046 17.5% -2.2% -3.4%edc men 1,253 3.7% 1,290 3.7% -2.9% -4.2%edc others^ 966 2.9% 1,016 3.0% -5.0% -6.4%collection 3,211 9.5% 3,027 8.8% 6.1% 4.7%women collection 2,398 7.1% 2,268 6.6% 5.7% 4.4%men collection 813 2.4% 759 2.2% 7.2% 5.7%others 6,496 19.3% 7,158 20.8% -9.3% -10.4%accessories 1,603 4.8% 1,673 4.9% -4.2% -5.8%kids 1,035 3.1% 1,169 3.4% -11.5% -13.1%bodywear 990 2.9% 950 2.8% 4.2% 3.4%shoes 962 2.9% 1,322 3.8% -27.2% -28.0%sports 695 2.1% 836 2.4% -16.9% -17.8%de. corp 345 1.0% 311 0.9% 10.7% 9.1%red earth 36 0.1% 25 0.1% 44.5% 43.7%

others* 830 2.4% 872 2.5% -4.8% -5.4%

Total 33,734 100.0% 34,485 100.0% -2.2% -4.4%

^ edc others include edc kids, edc shoes, edc accessories and edc bodywear* Others include salon, licensing income & licensed products like timewear, eyewear, jewellery, bed & bath, houseware, etc.

Performance of the collection division was the best amongst the major product divisions with a 4.7% year-on-year growth in local currency and its contribution to Group turnover amounting to nearly 10% of Group turnover. In addition, the sales performances of bodywear and de. corp outperformed other product divisions and recorded 3.4% and 9.1% year-on-year growth in local currency, respectively.

Turnover by Distribution Channels

Year ended 30 June 2010 Year ended 30 June 2009 Change in %

Key Distribution Channels HK$ million% to Group


Turnover HK$Local

currency

Retail# 17,877 53.0% 16,351 47.4% 9.3% 6.4%Europe 14,090 41.8% 13,304 38.6% 5.9% 3.9%Asia Pacific 3,023 9.0% 2,381 6.9% 27.0% 19.6%North America 764 2.2% 666 1.9% 14.7% 9.2%Wholesale 15,631 46.3% 17,906 51.9% -12.7% -14.3%Europe 13,903 41.2% 16,030 46.5% -13.3% -14.7%Asia Pacific 1,566 4.6% 1,721 5.0% -9.0% -12.2%North America and others 162 0.5% 155 0.4% 4.2% -4.1%Licensing and Others 226 0.7% 228 0.7% -1.1% -2.5%Licensing 181 0.6% 175 0.5% 3.4% 3.0%Salon 44 0.1% 53 0.2% -18.3% -18.4%

Others 1 0.0% 0 0.0% n.a. n.a.

Total 33,734 100.0% 34,485 100.0% -2.2% -4.4%

# Retail sales includes sales from e-shop in countries where availablen.a. Means not applicable

51


RETAIL

Retail turnover grew 9.3% to HK$17.9 billion (2009: HK$16.4 billion) representing 53.0% of Group turnover (2009: 47.4%). In local currency, retail turnover grew 6.4% mainly due to retail selling space expansion and the China acquisition, partially offset by 2.4% comparable store sales decline.

Comparable store sales decline was mainly due to higher base from last year with comparable store sales growth of 3.5%, decrease in footfall at comparable stores in many of our core retail markets and a slight decline in average price per transaction as the economic climate in Europe continues to impact consumer confidence. Comparable store sales in the third quarter was impacted by cold weather conditions in Europe. However, thanks to better products and retail operations, we noticed a significant increase in conversion rate. As compared to 30 June 2009, the number of comparable stores increased by 280 to 698 mainly contributed by 159 comparable stores in China resulting from the China acquisition and an increase of 63, 44 and 14 comparable stores in Asia Pacific (excluding China), Europe and North America, respectively.

Retail Performance Scorecard

Year ended 30 June

2010 2009

Total Excl. China

Year-on-year local currency turnover growth 6.4% 3.4% 10.0%

Segment EBIT margin^ 3.8% 3.9% 10.9%No. of Esprit POS 1,123 835 801Esprit net sales area (m2) 385,817 337,424 313,534Year-on-year change in Esprit sales area 23.1% 7.6% 15.4%Esprit average sales area per store* (m2) 344 404 391Comparable store sales growth -2.4% -2.2% 3.5%

* Calculated by dividing Esprit net sales area by number of POS as at 30 June 2010 and 30 June 2009

^ Segment EBIT margin for the year ended 30 June 2009 was restated as the basis of EBIT and EBIT margin have been changed as a result of the adoption of the new IFRS 8 “Operating Segments”In such a challenging market environment, we were selective in

expanding our retail distribution network and focused on opening stores that could improve productivity of retail selling space, such as opening more larger-format retail stores. As at 30 June 2010, the number of directly managed retail stores increased to 1,123 (30 June 2009: 801) including 34 net additions and 288 directly managed retail stores in China reclassified from wholesale to retail as a result of the China acquisition. Amongst the new openings, 9 new directly managed retail stores have net sales area of over 1,000 m2 each. Excluding China, retail sales area grew 7.6% year-on-year to 337,424 m2, in line with the Group target.

As a result of a comprehensive review, we decided to close 33 loss-making stores worldwide with closure cost of HK$793 million and an impairment charge of HK$303 million primarily for other stores.

52


Directly Managed Retail Stores by Countries

As at 30 June 2010

CountriesNo. ofstore

Netopenedstores*

Netsales

area m2

Change innet sales

area*No. of

comp-stores

Comp-store sales

growth

Europe 419 34 243,417 10.0% 258 -2.2%Germany** 173 9 123,029 7.7% 117 -1.4%Benelux 86 8 38,131 9.9% 60 -5.0%France 49 1 24,000 17.0% 37 -9.3%Switzerland 39 5 17,018 20.0% 22 4.2%U.K. 34 5 10,402 -4.1% 9 -4.3%Austria 14 2 14,683 13.0% 7 -3.6%Scandinavia 13 3 8,946 22.2% 3 7.6%Spain 7 (1) 4,979 2.8% 3 5.1%Portugal 2 – 1,667 0.0% – n.a.Ireland 2 2 562 n.a. – n.a.Asia Pacific (Excl. China) 334 (4) 63,471 -0.9% 220 -3.2%Australia 157 1 22,843 5.6% 97 -5.9%Taiwan 90 1 8,360 4.6% 57 -4.0%Malaysia 29 (1) 8,471 -0.9% 26 -0.6%Hong Kong 20 (5) 10,094 -20.0% 15 1.4%Singapore 22 (1) 8,996 4.7% 16 -7.8%New Zealand 13 2 3,005 6.7% 6 3.3%Macau 3 (1) 1,702 -8.7% 3 3.7%North America 82 4 30,536 8.3% 61 0.7%Canada 48 (1) 16,392 -2.6% 39 1.4%

United States** 34 5 14,144 24.3% 22 0.0%

Sub-total 835 34 337,424 7.6% 539 -2.2%China^ 288 – 48,393 n.a. 159 -6.0%

Total 1,123 34 385,817 23.1% 698 -2.4%

n.a. Means not applicable* Net change from 30 June 2009** All e-shops within Europe are shown as 1 comparable store in Germany and the e-shop in U.S. is shown as 1 comparable store in U.S.^ 288 Esprit franchise stores were reclassified as Esprit directly managed retail stores as a result of the acquisition of remaining interest in China operation

In addition to physical store expansion, the Group also extended its e-shop platform to cover Czech Republic, Poland, Slovakia, Hungary, Italy, Ireland and Greece in the financial year. As at 30 June 2010, our e-shop platform covered over 25 countries worldwide.

53


RETAIL TURNOVER BY COUNTRIESCountry // HK$ million // % of retail turnover // % HK$ growth // % local currency growth

* Italy’s retail turnover represented retail turnover from its e-shop which was first launched in the reporting year** Others’ retail turnover represented retail turnover from e-shop in Czech Republic, Poland, Slovakia, Hungary and Greece which were first launched in the reporting year


Canada $407 2.3% 11.8% 1.7%United States $357 2.0% 18.1% 18.2%

Australia andAustralia and New Zealand New Zealand

$899 5.0% 21.2% 1.6%


U.K. & Ireland $356 2.0% 3.4% 3.8%Scandinavia $273 1.5% 22.9% 19.3%Spain $91 0.5% 56.5% 52.6%Portugal $19 0.1% 31.2% 27.0%Italy* $1Others** $6

GermanyGermany $8,294 46.4% 4.8% 3.0%

BeneluxBenelux $2,221 12.5% 0.1% -1.3%

FranceFrance $1,032 5.8% 4.1% 2.1%

SwitzerlandSwitzerland $1,020 5.7% 19.8% 13.9%

AustriaAustria $776 4.3% 12.6% 10.5%

Rest of Asia PacificRest of Asia Pacific

Taiwan $261 1.5% -1.7% -3.2%Malaysia $211 1.2% 0.2% -3.0%Macau $97 0.5% -5.4% -5.4%

ChinaChina $499 2.8% n.a. n.a.

SingaporeSingapore $410 2.3% 2.7% -1.5%

Hong KongHong Kong $647 3.6% -2.3% -2.3%

WHOLESALE

Wholesale turnover amounted to HK$15.6 billion representing 46.3% of the Group turnover (2009: 51.9%). In local currency, wholesale turnover fell 14.3% year-on-year and the decline in the second half of the financial year had slowed down slightly from that of the first half of the financial year which was in line with expectations. Wholesale turnover decline was mainly due to existing customers ordering less as a result of the tough macro environment and weak market sentiment. We also noticed a change in customer buying behaviour which led to a shift in order mix from pre-order to short lead time orders. As a result, the weighting of pre-orders as a percentage of total order intake has decreased while that of short-lead time orders have increased. Comparing with 30 June 2009, controlled wholesale space, excluding China, was largely flat year-on-year.

Our decision to rationalize the wholesale customer base to improve operational efficiency has led to the loss of some small multi-label retailers. We believe the unfavourable impact that this exercise has brought to the Group is temporary and in the long term, this exercise will improve our operational efficiency.

Despite recording year-on-year decline in wholesale turnover during the year, we noticed some positive development in the Order Intake trend. The year-on-year decline in Order Intake has been improving month by month from July to November 2010 with the outlook for the period expected to be a mid single digit decline.

Wholesale Performance Scorecard

Year ended 30 June

2010 2009

Total Excl. China

Year-on-year local currency turnover growth -14.3% -15.9% -8.0%

Segment EBIT margin^ 25.4% 25.2% 27.3%No. of Esprit controlled space POS 12,191 11,548 13,586Esprit controlled space area (m2) 758,141 677,363 800,113 #

Year-on-year change in Esprit controlled space area -5.2% -0.3% 8.4%

Esprit average sales area per controlled space POS* (m2) 62 59 59

* Calculated by dividing Esprit controlled space area by the number of Esprit controlled space POS as at 30 June 2010 and 30 June 2009

^ Segment EBIT margin for the year ended 30 June 2009 was restated as the basis of EBIT and EBIT margin have been changed as a result of the adoption of the new IFRS 8 “Operating Segments”

# Excluding China, Esprit controlled space area was 679,472 m2 as at 30 June 2009

TOTAL RETAIL TURNOVER:

HK$17,877 million

“Solid growth inall regions.”

54


As at 30 June 2010, the Group had 12,191 controlled space wholesale point-of-sales of the Esprit brand (30 June 2009: 13,586). The change in the number of total controlled space wholesale point-of-sales mainly included 1,301 openings, 2,556 closures and 288 franchise stores in China reclassified as directly managed retail stores as a result of the China acquisition.

Wholesale Distribution Channel by Countries (controlled space only)

As at 30 June 2010

Franchise stores** Shop-in-stores** Identity Corners** Total**

CountriesNo. of

stores

Salesarea

m2

Netopenedstores/

Reclassi-fication*

Net change

in netsales area*

No. of stores

Sales area

m2

Netopenedstores*

Net change

in netsales area*

No. of stores

Sales area

m2

Netopenedstores*

Net change

in net sales area*

No. of stores

Sales area

m2

Net opened stores/

Reclassi-fication*

Net change in net sales

area*

Esprit Europe 1,148 315,445 (83) 8.0% 4,955 204,083 (217) -2.6% 5,012 113,298 (854) -12.9% 11,115 632,826 (1,154) 0.2%Germany*** 416 134,532 2 16.5% 3,825 164,653 (229) -3.2% 2,771 55,563 (407) -15.1% 7,012 354,748 (634) 1.1%

Benelux 175 58,357 (1) 15.4% 181 7,712 (14) -4.7% 737 18,483 (109) -5.3% 1,093 84,552 (124) 8.2%

France 226 40,728 (48) -5.3% 364 10,416 (5) -0.5% 401 10,445 (87) -17.4% 991 61,589 (140) -6.8%

Scandinavia 124 37,675 2 5.1% 83 3,952 (24) -16.3% 554 14,058 (199) -20.4% 761 55,685 (221) -4.4%

Austria 89 19,238 (20) -7.5% 141 5,106 13 4.9% 206 4,852 (17) -13.2% 436 29,196 (24) -6.6%

Italy 49 9,962 (12) -3.6% 31 1,531 6 16.2% 128 3,236 (35) -21.4% 208 14,729 (41) -6.6%

Switzerland 48 9,836 1 6.8% 48 2,900 (5) -8.3% 94 2,104 (12) -19.4% 190 14,840 (16) -0.9%

Spain 12 3,527 (3) -12.6% 232 5,933 34 18.7% 11 225 3 55.2% 255 9,685 34 5.5%

U.K. and Ireland 9 1,590 (4) -43.7% 50 1,880 7 2.4% 110 4,332 9 86.9% 169 7,802 12 11.8%

Esprit Asia Pacific(Excl. China)

179 34,712 (6) -6.3% 251 9,765 27 -5.8% 3 60 3 n.a. 433 44,537 24 -6.0%

The Middle East 47 12,227 (9) -12.9% 4 863 1 48.5% – – – – 51 13,090 (8) -10.5%

India 20 5,315 (1) -19.3% 27 1,473 3 -8.3% – – – – 47 6,788 2 -17.1%

Thailand 23 2,942 (1) -25.4% 71 2,781 (8) -11.2% – – – – 94 5,723 (9) -19.2%

Philippines 16 2,376 – 3.8% – – – – – – – – 16 2,376 – 3.8%

Australia – – – – 58 2,029 3 3.8% – – – – 58 2,029 3 3.8%

Others 73 11,852 5 16.6% 91 2,619 28 -15.2% 3 60 3 n.a. 167 14,531 36 9.6%

Esprit North America and Others

– – (2) -100.0% – – (6) -100.0% – – – – – – (8) -100.0%

Mexico – – (2) -100.0% – – (6) -100.0% – – – – – – (8) -100.0%

Sub-total 1,327 350,157 (91) 6.3% 5,206 213,848 (196) -2.8% 5,015 113,358 (851) -12.9% 11,548 677,363 (1,138) -0.3%

Esprit China^# 643 80,778 (257) -33.0% – – – – – – – – 643 80,778 (257) -33.0%

TOTAL 1,970 430,935 (348) -4.2% 5,206 213,848 (196) -2.8% 5,015 113,358 (851) -12.9% 12,191 758,141 (1,395) -5.2%

* Net change from 30 June 2009** Excludes Red Earth and salon*** Germany controlled space wholesale POS include controlled space wholesale POS in countries outside Germany, mainly Russia, Poland, Greece, Czech Republic and Croatia^ 288 Esprit franchise stores were reclassified as Esprit directly managed retail stores as a result of the acquisition of remaining interest in China operation# The opening balances of franchise store number in China and their corresponding net sales area were restated to 900 and 120,641 m2, respectively, as a result of reclassifying 796 identity corners

to franchise stores during the yearn.a. Means not applicable

Despite the decline in wholesale turnover, we managed to keep our wholesale distribution network capacity stable with total controlled wholesale space (excluding China) staying largely flat as compared to 30 June 2009. In addition, there was also a quality upgrade of the wholesale distribution network with a higher portion of franchise stores. Due to our continued focus on franchise business development, the controlled wholesale space of franchise stores (excluding China) actually grew 6.3% year-on-year compensating for the decline in controlled space of shop-in-stores and identity corners (excluding China). As at 30 June 2010, the proportion of controlled wholesale space of Esprit franchise stores increased to approximately 57% (30 June 2009: 56%) of total controlled wholesale space.

55


WHOLESALE TURNOVER BY COUNTRIESCountry // HK$ million // % of wholesale turnover // % HK$ growth // % local currency growth

* Germany wholesale sales includes sales to other European countries mainly Russia, Poland, Greece, Czech Republic and Croatia** Macau wholesale sales includes sales to other countries mainly China, Middle East, Chile, Thailand and Indian.a. Means not applicable

MacauMacau**** $1,198 7.7% -26.1% -28.7%

ChinaChina $285 1.8% n.a. n.a.


Switzerland $389 2.5% -3.4% -8.7%Italy $286 1.8% -20.9% -22.4%Spain & Portugal

$212 1.4% 3.3% 3.5%

U.K. & Ireland $87 0.6% -27.5% -26.3%


Canada $146 0.9% 17.3% 7.0%United States $16 0.1% -49.2% -49.3%

Germany*Germany* $6,461 41.3% -14.1% -15.6%

BeneluxBenelux $2,769 17.7% -10.0% -11.1%

FranceFrance $1,809 11.6% -15.5% -16.4%

ScandinaviaScandinavia $1,191 7.6% -13.9% -15.8%

AustriaAustria $699 4.5% -14.4% -15.7%

Hong KongHong Kong $6 0.0% -72.5% -72.5%

AustraliaAustralia $77 0.5% -0.2% -15.7%

TOTAL WHOLESALE TURNOVER:

HK$15,631 million

56


LICENSING

Turnover from licensing (primarily license royalties) was HK$181 million (2009: HK$175 million) representing 3.0% year-on-year growth in local currency. While turnover from licensing (primarily license royalties) accounted for only 0.6% of the Group turnover, its brand value was estimated to be approximately US$800 million retail sales values of licensed products. During the year, a total of 7 licensees were signed up to strengthen our licensed product range in areas like travel luggage, flooring, kids furniture, bedding and umbrellas. As at 30 June 2010, we had over 35 license partners. With the cooperation of our competent license partners, our licensed products currently are covered under three licensed product worlds, Accessories’ World, Home World and Babies’ & Kids’ World.

During the financial year, several new licensed products were launched. Our Home World, which offers furniture, bathroom furniture, wallpaper, lighting, carpets, home textiles and accessories, bed linen and bedding as well as a complete bath concept, is expanding and improving into high-quality solid wood parquet and laminate flooring in its Esprit home flooring line with Parador as license partner. The high quality of these products stands out, and the unique designs are tailored to each living style in the current Esprit home collection.

In Accessories’ World, we introduced a new fragrance and a new product line, Esprit Luggage during the financial year. In March 2010, Esprit Imagine, a new fragrance that unlocks the imagination was launched. With the cooperation of Coty, Esprit’s license partner for fragrances for many years, we launched the new duo concept, Esprit Imagine for her and Esprit Imagine for him. In May 2010, we added a new licensed product line, Esprit Luggage, with the collaboration of Happy Rain, our successful partner for Esprit umbrellas for many years and also a luggage specialist. There are currently three series under Esprit Luggage, “SuperLight”, “Silence” and the hard-shell line “Polycarbonate” which combine practical elements, the highest level of quality and comfortable handling with typical cutting-edge Esprit design. In addition to classic travel luggage, the product line also offers business solutions including messenger bags, laptop bags and pilot cases as well as intelligent travel accessories to cater for the specific needs of different target user groups.

With the collaboration of 12 license partners, Babies’ and Kids’ World covers a wide variety of products, such as Esprit toys, prams, nursery equipment, carpets and wallpaper. In the International Furniture Fair 2010, which took place in Cologne, Roba Baumann GmbH, a specialist for furniture systems for babies and children and is our licensee partner presented two new room concepts for the age group of 0 to 12 years old. The new modular concept based on the motto “Colour your furniture!”, comprising a well-balanced basic design room as well as a fancy designer room was showcased.

We were also excited about Esprit Home receiving two awards, award for the best wallpaper 2009 and the reddot design award for the cushion cover Beat, during the financial year. In January 2010, our wallpaper was awarded by the editorial department of Eurodecor, a very famous magazine for Home, the best product in the category “selling” and our licensee AS Creation the award for best delivery service. Cushion covers Beat by Esprit Home also won the “red dot award: product design” in one of the largest and major international design competitions. With its outstanding and innovative design, cushion covers Beat by Esprit Home impressed the jury of one of the most prestigious international design competitions.

04.2 PROFITABILITY ANALYSIS

The Group’s gross profit was HK$18,436 million (2009: HK$17,962 million) while the Group’s gross profit margin was 54.7% (2009: 52.1%). The increase in the Group’s gross profit margin was mainly due to a change in the channel mix and improvement in both wholesale and retail gross profit margins.

Operating profit of the Group was HK$3,786 million (2009: HK$5,729 million) while the Group’s operating profit margin was 11.2% (2009: 16.6%). The decrease of the Group’s operating profit was mainly because of the 19.8% increase in operating expenses partially compensated by a slight increase in gross profit. Operating expenses grew mainly due to higher occupancy costs, staff costs and depreciation resulting from the retail expansion as well as higher impairment of stores/assets and expense incurred in relation to the closure of 33 loss-making retail stores. Excluding the impact from the China acquisition, store closure costs and impairment of stores/assets, the operating profit of the Group would be HK$4,905 million and the Group’s operating profit margin would be 14.5%.

Retail EBIT margin was 3.8% (2009: 10.9%). The year-on-year decline in retail EBIT margin was mainly due to a provision of approximately HK$793 million in closure costs of 33 loss-making retail stores and about HK$303 million impairment of stores/assets. Excluding the store closure impact and the impairment of stores/assets, the retail EBIT margin would be 9.9%, slightly lower than that of the last financial year mainly due to decline in productivity caused by lower traffic, negative comp-store sales growth and longer ramp-up period of new stores.

Wholesale EBIT margin was 25.4% (2009: 27.3%). Amid a challenging wholesale market environment, wholesale EBIT margin was under pressure as a result of turnover decline and the corresponding leveraging effect. Total wholesale operating expenses stayed largely similar to that of the last financial year because of tight cost control but offset by higher impairment of trade debtors. Excluding the impairment of trade debtors, wholesale operating expenses stayed largely flat year-on-year.

Following the China acquisition, since 12 February 2010, the Chinese associated companies have become our subsidiaries and their results were consolidated with the Group results. As a result, the HK$81 million (2009: HK$161 million) profit contribution from our China associated companies for the year ended 30 June 2010 represented the profit contribution from our China associated companies up to 11 February 2010.

Profit before taxation was HK$5,474 million (2009: HK$5,977 million). Excluding the impact from the China acquisition, store closure cost and impairment of stores/assets, profit before taxation would be HK$5,007 million (2009: HK$6,015 million).

The Group’s effective tax rate increased to 22.8% (2009: 20.6%) partly due to a HK$54 million underprovision of Hong Kong profits tax for prior years. Net profit of the Group was HK$4,226 million (2009: HK$4,745 million) and net profit margin of the Group was 12.5% (2009: 13.8%). Excluding the impact from the China acquisition, store closure cost, impairment of stores/assets and underprovision of Hong Kong profits tax for prior years, net profit would be HK$3,691 million and the net profit margin would be 10.9%.

57


04.3 BALANCE SHEET REVIEW

As at 30 June 2010, the Group’s total cash and bank balances increased to HK$6,748 million (30 June 2009: HK$4,840 million) despite a 13.1% year-on-year depreciation of the EUR/HKD closing rate. Net cash inflow from operating activities grew 2.7% to HK$5,412 million (2009: HK$5,272 million) despite a decline in net profit. Net cash balance was HK$4,148 million (30 June 2009: HK$4,840 million).

HK$ millionYear ended

30 June 2010Year ended

30 June 2009Cash and cash equivalents as at 1 July 4,840 6,521Net cash inflow from operating activities 5,412 5,272Net cash used in investing activities (4,429) (1,698)Net cash inflow from/(used in) financing activities 1,296 (5,129)Net increase/(decrease) in cash and cash equivalents 2,279 (1,555)Effect of change in exchange rates (371) (126)Cash and cash equivalents as at 30 June 6,748 4,840Less:Bank loans (2,600) –

Net cash balance 4,148 4,840

Capital expenditure of the Group for the financial year amounted to HK$1,509 million (2009: HK$2,011 million). Investment in opening new stores and expanding existing stores amounted to HK$576 million while HK$232 million was invested in refurbishing existing stores. IT investment was HK$639 million mainly attributable to the SAP/EPS project.


30 June 2010Year ended

30 June 2009New stores and expansion 576 865Refurbishing existing stores 232 455IT projects 639 524

Office & others 62 167

Purchase of property, plant and equipment 1,509 2,011

As at 30 June 2010, net trade debtors balance dropped to HK$2,389 million (30 June 2009: HK$3,039 million). The amount of uninsured and/or unsecured net trade debtors accounted for 68.1% of net trade debtors (30 June 2009: 54.8%). The increase in the portion of uninsured and/or unsecured net trade debtors was mainly due to the increase of the minimum individual trade debtors balance that is eligible for insurance coverage.

Net trade debtors balance

4,007 3,039 2,3894,500

4,000

2,500

3,000

3,500

2,00030 Jun 08 30 Jun 09 30 Jun 10

(HK

$ m

illio

n)

Our inventory position continued to improve. As at 30 June 2010, inventory declined to HK$2,455 million (30 June 2009: HK$2,997 million) despite a net addition of 34 directly managed retail stores (excluding China) and addition of HK$166 million inventory from China during the financial year. Inventory turnover was shortened to 63 days (2009: 65 days).

Inventory balance

3,170

2,997

2,455

697801

1,123

3,500

2,500

3,000

2,00030 Jun 08 30 Jun 09 30 Jun 10

No. of directly managed retail stores

(HK

$ m

illio

n)

Inventory Turnover Days

54 65 6370

60

65

45

50

55

40FY 07|08 FY 08|09 FY 09|10

Day

s

As at 30 June 2010, the Group had total interest bearing external borrowings of HK$2.6 billion (30 June 2009: nil) which was used to finance the acquisition of the remaining interest of the China Joint Venture. None of the Group’s assets were pledged as security for overdraft or any short-term revolving facility.

58


HUMAN RESOURCES

After converting to full-time position terms, the Group employed over 14,100 staff worldwide (30 June 2009: over 10,700) as at 30 June 2010, including 3,100 additional employees due to the acquisition of the China joint venture. Remuneration packages that take into account business performance, market practices and competitive market conditions are offered to employees in compensation for their contributions. In addition, share options and discretionary bonuses are also granted based on the Group’s and individual’s performances. Employees are connected through the Group’s quarterly newsletters and global intranet.

FOREIGN EXCHANGE RISK MANAGEMENT

To minimise our foreign exchange exposure on sourcing costs for merchandise produced for Europe in Asia, most of the suppliers in Asia were asked to quote and settle in Euros. In addition, the Group entered into foreign exchange forward contracts with reputable financial institutions to hedge foreign exchange risk.

DIVIDEND

The Board is pleased to recommend the distribution of a final dividend of HK$0.67 per share (FY 2008/2009: final dividend of HK$0.72 and special dividend of HK$1.33) for the year ended 30 June 2010.

In order to maintain a strong balance sheet for future growth, the Board has recommended to provide the shareholders with an option to receive the final dividend in form of new fully paid shares in lieu of cash.

Subject to the approval of shareholders of the Company at the forthcoming annual general meeting, the final dividend will be payable to the shareholders whose names appear on the Registers of Members of the Company at close of business on Wednesday, 24 November 2010. Dividend warrants and share certificates for new shares to be issued under the scrip dividend reinvestment scheme will be despatched by ordinary mail on or around Wednesday, 29 December 2010.

The dividend reinvestment price shall be determined by the average closing price of the shares of the Company for the five trading days preceding Thursday, 18 November 2010. The election form will be despatched on or around Tuesday, 30 November 2010 and the election period for scrip dividend will commence from on or around Tuesday, 30 November 2010 to Wednesday, 15 December 2010, both days inclusive.

The scrip dividend reinvestment scheme is conditional upon the passing of the relevant resolution at the annual general meeting and the Listing Committee of The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) granting the listing of and permission to deal in the new shares to be issued under the scrip dividend reinvestment scheme.

Further details of the scrip dividend reinvestment scheme will be set out in a circular to the shareholders to be despatched before the annual general meeting.

The total dividend, including the interim dividend paid and the proposed final dividends, represents a total full year regular dividend payout ratio of approximately 60% (2009: 40%) of the adjusted earnings per share of the Group for the year ended 30 June 2010.


30 June 2010

Net earnings 4,226Adjusted for:(i) Impact from acquisition of China JV (1,563)

(ii) Impairment of stores/assets* 303

Adjusted net earnings 2,966Adjusted EPS (HK$) 2.35

HK$

Adjusted EPS 2.35Dividend payout ratio 60%

Regular DPS 1.41MinusInterim DPS paid 0.74

Final DPS proposed 0.67

* Represents impairment of stores/assets for stores other than the 33 loss making retail stores under the store closure program

The Board will continue to review the Group’s financial position and capital needs every year in deciding its dividend recommendation going forward. The Board will be using a guideline of 60% of net earnings as a regular dividend payout ratio for the future.

59


04.4 PROSPECTS

Going into the new financial year, total planned capital expenditure amounts to HK$2.2 billion, of which HK$738 million will be invested in the opening of approximately 100 new stores and store expansion as well as HK$406 million for the refurbishment of existing stores. We plan to grow our retail selling space by 5% to 10% year-on-year. In relation to the 33 loss-making stores, the timing of the stores closure depends on final negotiation with landlords.

We expect the wholesale market environment in the first half of the new financial year to remain challenging. At present, the wholesale order book between July 2010 and November 2010 shows mid-single digit year-on-year decline in local currency and it is improving month by month to November 2010 and is particularly strong in flash and repeats orders.

With full control of the China market, we are proud that Esprit is now truly globalised and moving to a more evenly balanced geographic portfolio through a stronger and growing presence in Asia Pacific. The proforma full year turnover of Asia Pacific represented 16% of the total Group turnover.


Proforma Full Year

Retail Wholesale Total

Turnover (HK$m) 1,640 886 2,526% of total 65% 35%Number of cities 6 163 169

Number of POS* 288^ 643 931


Actual Consolidated(Feb10 – Jun10)

Retail Wholesale Total

Turnover (HK$m) 499 285 784% of total 64% 36%Number of cities 6 163 169Number of POS* 288 643 931

* Exclude Red Earth and Esprit salons as at 30 June 2010^ 288 Retail point-of-sales (“POS”) includes 115 in Shanghai, 98 in Beijing, 25 in Guangzhou,

21 in Chengdu, 19 in Dalian, 10 in Chongqing as at 30 June 2010

In 5 years time, we are targeting to at least double the China turnover, expanding from an existing base of 169 to over 400 cities, increasing number of POS from 931 to over 1,700 and increasing selling space by at least over 70% in China. We will also further penetrate into existing retail and franchise cities and expand our footprint to non-represented regions through retail and franchise. EBIT margins are expected to improve from the low-teens to high-teens. Moreover, as pricing in the Chinese e-commerce world is lower than in the offline business, we are exploring the potential for introducing a lower priced line to penetrate further into unrepresented tier 3-5 cities for further upside and market share growth. In addition to launching our own branded e-shop similar to the European and North American business models, we will further expand our retail business into at least 4 other major cities thereby increasing the number of POS and selling space by at least over 70% in the next 5 years. For wholesale, we will expand from 163 to over 400 cities focusing mainly on tier 3-5 cities with the existing franchise model and we expect number of POS and selling space will increase by at least over 65% in the next 5 years.

FY 2009/2010 was a year full of challenges. These challenges give us opportunities to see our weaknesses and strengths and restructure our way of doing business. The Group is confident that the hard work and effort we have put in during the financial year just ended will build momentum in our businesses and further strengthen our platform for long-term profitable growth.

60

Annual Report 09/1005 // SUSTAINABILITY TO ESPRIT

61


Annual Report 09/10

62


63


These are some of the questions we constantly ask ourselves when we make our business decisions.

We have been a responsible company for many years and we hope this section will give you an update on the work we have done in different areas during FY 09|10 and beyond. Going forward, we have two specific targets: put more emphasis on environmental considerations when we make our business decisions and conduct even more unannounced audits on our suppliers.

64


05.1 WOULD YOU CONSENT TO WEARINGANY PRODUCT MANUFACTURED UNDER UNFAIR CONDITIONS?

We have a set of core beliefs which ensures that those who produce Esprit products are treated fairly. Our core beliefs are:· No child labour· No forced labour· Safe and healthy working conditions for workers· Fair compensation for workers· Voluntary overtime· No unauthorised or disciplinary deductions from wages· Legal and regulatory compliance practice strictly enforced· Free of discrimination· Minimal damage on the environment

With the above core beliefs and the goal to minimise the adverse impacts on our stakeholders in mind, we have adopted the Business Social Compliance Initiative (“BSCI”) Code of Conduct, which gives details on supply chain standards that members must meet and have incorporated it into our buying agreement. The BSCI was founded by the EU Foreign Trade Association in Brussels. For details of the BSCI and its Code of Conduct, please refer to BSCI website at http://www.bsci-eu.com. We have been contributing our knowledge to other BSCI members through our representation on the BSCI Members’ Board since 2004 and as Chairman of the BSCI Certification Bodies and Accreditation Committee since 2008.

WHAT IS OUR COMPREHENSIVE FRAMEWORK WHICH ENSURES THAT OUR CORE BELIEFS ARE UPHELD?

1. Supplier/Manufacturer documentation

All suppliers are contractually required to abide by our Sourcing Compliance Policy and to provide written declaration:· not to use restricted chemicals,· not to use child labour,· observe the BSCI Code of Conduct, and· provide a manufacturer profile.

2. Enforcing our standard continuously

It is our dedicated sourcing compliance team’s mission to ensure that all Esprit products are produced by suppliers who meet our standard. The sourcing compliance team enforces our standards through audits, both announced and unannounced, carried throughout the year and provide detailed assessments and corrective actions to all audited suppliers.

Minimum requirements for new suppliersTo qualify for an initial supply agreement, new suppliers must not have any substantial critical violations – there must be no child labour, work hours must be recorded, absence of illegal drainage of waste water and/or harmful chemicals and absence of illegal transshipment. After that, our audit process is largely two fold.

In-house auditsOur SA8000-qualified supply chain auditing team is sent to the place where the products are manufactured (“Place of fabrication”),as some suppliers may outsource to subcontractors, to conduct an audit on compliance with predetermined criteria such as working time, compensation, child labour or young employees, forced labour and occupational health and safety. For those who do not meet our standards, the compliance team will work closely with the suppliers to

provide assistance and guidance in order to bring them up to the BSCI audit standard within 18 months. During the 18 months, the compliance team will conduct two additional audits to assess the progress and if the supplier continues to fail to meet the standard, it will be suspended for production of our orders. Auditors rotate between supplier audits to ensure that the auditors are independent.

BSCI auditsSuppliers who meet our in-house standard will be subject to the BSCI audit, which holds one of the most stringent standards in the industry. The BSCI audits are conducted by BSCI accredited auditing companies. Results from the BSCI audits will be published on the BSCI website available for viewing by BSCI members.

Continuous monitoringSuppliers are continuously monitored under our Esprit Surveillance Audit Programme in which post-BSCI audit and surveillance audit will be conducted. A supplier will be suspended for a period of 2 years if any serious violations are detected.

Active suppliers audited in FY 09|10

Percentage of active suppliers audited in FY 09|10

audited 95%to be audited 5%

0 20 % 40 % 60 % 80 % 100 %0 20 % 40 % 60 % 80 % 100 %

China 100%

India 100%

Indonesia 100%

Turkey 100%

Vietnam 100%

Bangladesh 100%

65


China 53% 54%

Rest of the World 1% 0%

Europe 23% 19%

South East Asia 11% 14%

Rest of Asia 12% 13%

Regions where Esprit Products were made in FY 09|10FY 09|10 // FY 08|09

3. Education

For suppliers:Before engaging a new supplier, Esprit’s Vendor Compliance Programme and BSCI materials will be sent to such suppliers to ensure they have full understanding of the scope and requirement they need to observe and comply.

Suppliers are also invited to attend Esprit Vendor Meetings to learn about Esprit’s Vendor Compliance Programme and BSCI materials. In FY 09|10, Esprit Vendor Meetings were held in China, India and Bangladesh, which were well attended by our suppliers, covering more than 50% of all our suppliers worldwide.

For Esprit employees:All sourcing staff receive compliance training covering the BSCI principles. For supply chain auditors, who must be SA8000 qualified, a detailed training curriculum is in place to develop them to become garment supply chain compliance experts within 3 years.

From the figures above, in FY 09|10 approximately 95% of our active manufacturers were audited, mostly in countries which are considered “high-risk”. In addition, the majority of active manufacturers were BSCI audited in FY 09|10. Approximately 4 new manufacturers were suspended for failing to meet our minimum compliance requirements.

The most common non-compliance issues found in vendor compliance audits conducted in FY 09|10 include:· No system to monitor over the subcontractors’ compliance

performance· Inadequate social insurance coverage to all workers· Inconsistency between payroll, attendance and production records· Employees being paid below the legal minimum wages· Excessive weekly working hours overtime working hours· Insufficient first aid supplies· Insufficient illumination for workers at work stations· Inadequate workplace safety such as blockage of aisle or walkways.

Our compliance team will continue to follow-up with the above violations to ensure that they are resolved satisfactorily.

Child labourWe have zero tolerance towards the use of child labour - not even one child. A third party reported that child labour was used in one of our suppliers’ factory in China. After further investigation, unauthorised child labour was detected and our contractual relationship with that supplier was immediately terminated.

66


05.2 WOULD YOU LIKE TO PREVENT ENVIRONMENTAL DAMAGE?

What we mean by “The world is our culture” is not only an expansion of our geographical footprint and the continuous growth in sales; we believe firmly that as a responsible global corporation, impact to the environment must be kept to a minimum. This means we have to limit the impact of our products and our actions in every stage. Examples include:

· Since October 2009, the body of our financial reports are now printed on papers that are certified by Forest Stewardship Council (FSC). Since beginning of 2010, our internal quarterly newsletters are also printed on FSC certified papers. By using FSC certified papers, we hope that we can contribute to provide more incentives for responsible forestry and help preserving the world’s forest.

· Since early 2010 our registered shareholders can now choose to receive our corporate communication including our financial reports in English or Chinese language only or they can even choose to receive the electronic version only to help preserving our environment.

· We pay a premium price in order to ensure our carbon footprint is kept to a minimum. We use the carbon neutral transport services as part of the climate protection programme of the Deutsche Post DHL since 2009 which aims to reduce carbon footprint for every letter mailed, every container shipped and every square meter of warehouse space used, by 30 percent by the year 2020.

· We continued to provide sponsorship to the “Greenhouse” project of the Natural Heritage Foundation of Germany’s Nature and Biodiversity Conservation Union (NABU) preserving an area of natural paradise and the endangered species living in it.

· Esprit Germany has started participating in the Deutsche Bahn “Umwelt-Plus” (Environment-Plus) initiative that offers the opportunity to make business travel CO2 neutral. The kilometers we travel by German railway are powered by electricity generated by 100% renewable sources from DB Energie. This ensures that our business travel by German railway is carbon neutral at an additional cost of 1% of travel costs.

· Esprit Finland organized the Finn Church Aid’s “Ekoteko” (make it ecological) campaign together with radio station NRJ. One tree was planted in developing countries for every Euro raised to help the people in these countries and the environment. EUR110 was raised amongst our colleagues for 110 trees.

· We participate in the dual system of the Duales System Deutschland GmbH which collects and recovers sales packaging. Our participation in 2009 led to savings of 1,416 tonnes CO2-equivalent.

· We moved into the Global Business Headquarters in Autumn 2003 which was built with a ventilation system which reuses the heat from the sun to regulate the building’s temperature throughout the year, contributing to cost and energy savings.

· In our offices and stores, running times of heating systems, air conditioning, etc are regularly controlled and optimised. We use energy saving light bulbs wherever possible.

· For Europe, our letterhead only has the red Esprit logo on so that it can be used for different Esprit company names and details in order to minimise the wastage of letterhead printed for companies that are rarely used.

· Paper is recycled and we actively encourage staff to be more environmentally conscious when printing documents.

· In Europe, resources are dedicated to sort out daily rubbish. Paper and plastics will be recycled in different ways. We also collect plastic bottles and tin cans for recycling in pantries in our offices.

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05.3 WOULD YOU EXPECT US TO SUPPORT THOSE IN NEED?

SOS CHILDREN’S VILLAGES

KEY DATES

May 2008: Purchase of the landOctober 2008: Laying of the foundation stone and launch of

construction after the end of the monsoon seasonMarch 2010: Construction of six family houses has been

completed and children will move into these houses in a phased manner

April 2010: Construction of six family houses has been completed and children have started moving into these houses in a phased manner

House warming ceremony was held on 26 April 2010

June 2010: Construction completed in most material respectsJuly 2010: 31 children in the age group of 3-10 years old from

different places of Raigad and Mumbai have moved in

Autumn 2010: Official opening once all the families moved in

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Welfare and protection of basic rights of underprivileged children is very personal to us. Therefore, besides having no tolerance for child labour, we regard our work with SOS Children’s Villages (“SOS”) for the past few years as another way of addressing the issue of child poverty and exclusion. SOS Children’s Villages is an international non- governmental social development organisation that has been active in the field of children’s rights and committed to children’s needs and concerns since 1949. At the moment, SOS runs more than 2,000 projects and programmes in 132 countries and territories.

We picked India as a country to focus our efforts because of the 400 million children in India, of whom 40% live below the poverty line (INR 800 per child per month) and SOS Children Villages India has set a goal to support 100,000 children by the year 2016. Since the first SOS Children’s Village built in Greenfields near Delhi in 1964, more than 14,000 children are now under long-term care in 31 SOS Children’s Villages around India. Children without parental care are provided with long term family-based childcare.

Not only will the children in this SOS Children’s Village be given support, but the Alibaug community will benefit from the SOS Social Centre which will be the hub of community empowerment focusing on socially and economically vulnerable families as well as their children.

With the foundation stone laid on 4 November 2008, the Alibaug SOS Children’s Village is scheduled to open this Autumn. By which time, the 14 family houses and supporting infrastructure, including a kindergarten and a social centre will be ready. The kindergarten and social centre in the Alibaug SOS Children’s Village will help more than 60 children and 500 caregivers and their children with a special focus on educating women.

While our SOS Children’s Village is being built in Alibaug, our colleagues have been working on raising funds for the kids and their families in India.

· 2009 charity edition of the Esprit Advent calendar featuring a fairytale unicorn design with little chocolate surprises was developed in co-operation with chocolatier Lindt & Sprüngli, Germany and was sold in our retail stores across Germany and Austria from the beginning of November 2009 and from our business headquarters in Ratingen, Germany and in the e-shop at www.esprit.de. The calendars were sold at EUR9.95 each and raised a total of EUR60,030.

· The entire profits from the sample sales held at our business headquarters in Ratingen, Germany in December 2009 raised a total of EUR41,000 for the Greenfields-Anangpur project in India.

· Esprit Scandinavia organized “run kilometers” to raise funds for our SOS Children’s Village. Each participant donated DKK1 or 2 for every kilometer they run and other team members make donations to the piggybank directly, raising a total of DKK3,200.

Esprit also supports 6 projects around Delhi that aim at strengthening families of origin and improving education and medical services.

Family strengthening programmeSocially excluded and marginalised families are at the verge of collapse in India due to extreme poverty, death of husbands/wives, separation and caregivers getting affected by fatal diseases. Thus, the primary goal of these programmes is to empower caregivers most of whom are women: courses advise them on how they can take charge of their own lives again. They get to know and protect their own rights and learn how to manage resources. This programme helps almost all women caregivers find an employment opportunity with which they can earn enough money to send their children back to school, provide for basic health and minimum nutrition. Besides that, in Faridabad, Greenfields and Bawana, over 1,400 children and their families received a subsidy for school fees and food, as well as basic medical care.

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THE “TRUE MIRACLE”

Shonamati (15) and her brother Charan (13) had to grow up much too early. After the death of their parents, they had to struggle through life alone. At first their grandmother took care of them but after she died, they were left with the neighbours who gave them something to eat every now and then. Shonamati and Charan had to work on fields in order to secure themselves with at least something to eat and little money. Going to school was something they could not even dream of.

Shonamati and Charan live in Pawal, a small village around 55km from Delhi. Around 65% of the population in the region lived from farming. For many families, sending their children to school was completely beyond reach as they do not have any way to pay for the books and materials and even the school fees. To help these children, SOS launched an education project to provide children with access to basic school education.

At a meeting in Pawal, an SOS employee learnt about the misfortune of Shonamati and Charan. He visited the children together with the “Sarpanch”, the head of village to see what could be done to help them with their future. For Shonamati and Charan, it was clear that they wished to remain in the village where they have their parent’s house and the neighbouring community.

And SOS did something for Shonamati and Charan which they described as a “True Miracle” – instead of working in the fields, both of them can now go to school. They receive books, materials, school uniforms and money for school fees from the ‘SOS Family Help Programme’ and they have become very keen students. SOS has further managed to secure a small monthly orphan’s allowance for the children to cover their basics.

Charan wants to later complete a traineeship in organic agriculture to learn more about grain farming. Shonamati says, “I heard that miracle exists, but this one really came true for us.”

THE WORLD IS OUR CULTURE – ESPRIT ALSO CARES ABOUT OTHER PARTS OF THE WORLD

Taiwan - The Morakot typhoon wrought catastrophic damage in Taiwan on 8 August 2009, hundreds of people died and hundreds of thousands were made homeless.

Esprit Taiwan launched the “Morakot Typhoon Relief Day” campaign on 16 August 2009 at all Esprit stores and counters in Taiwan. NT$300 was donated to the Red Cross, ROC for every item sold at these stores and counters and successfully raised NT$1.3 million on the day.

Esprit did not stop there. Esprit Group donated approximately another NT$2 million, making a total of NT$3.3 million to help the victims in the disaster area through the Red Cross, ROC for immediate relief and future rebuilding efforts.

Hong Kong - Esprit Cares Trust (Hong Kong) sponsored the 22nd & 23rd Cup of Kindness Charity Day organized by the Hong Kong Golf Club (HKGC) held in September 2009 and to be held in October 2010 respectively. HKGC was established in 1889. The Cup of Kindness Charity Day has been held by the club every year since 1987 raising funds for charities in Hong Kong.

Germany - Esprit supported the “Event Prominent” charity gala held in Hamburg on 1 November 2009 by taking part in the charity fashion show, where 40 celebrities took the cat walk. The proceeds of the “Event Prominent” went to the Hamburg Leuchtfeuer hospice and the children’s charity Dunkelziffer.

China - Esprit Cares Trust (Hong Kong) donated HK$200,000 to the China Literacy Foundation Limited in December 2009 to help the disadvantaged children in the very poor rural regions of China.

Hong Kong - Esprit Cares Trust (Hong Kong) participated in the Corporate Contribution Programme organized by The Community Chest of Hong Kong. HK$1 million was donated to the chest in January 2010 and received a platinum award from the chest as recognition to our contribution to the community and registered charities of Hong Kong.

Haiti - The Haiti earthquake on 12 January 2010 was a catastrophic magnitude 7.0 Mw earthquake with 52 aftershocks measuring 4.5 Mw or greater within the following two weeks were recorded. Hundreds of thousands of people died and approximately a million were made homeless. SOS Children’s Villages, together with other organisations, started emergency programmes for unaccompanied children to provide them with safe drinking water, food, clothes, emergency health care, sanitation and safe shelter for children.

Esprit acted immediately and organised an international fund raising campaign on 23 January 2010 raising a total of EUR115,000 which went towards SOS Children’s Villages in Haiti via Esprit Cares Trust (Hong Kong) in the same month.

Hong Kong - Esprit Hong Kong has participated in the charity walkathon organized by the Hong Kong Blind Sports Association Limited (HKBSA) in April 2010. Approximately HK$5,000 was raised and donated to HKBSA who serves over 126,000 visually impaired persons and promotes equal participation and sports for all.

China - The Qinghai earthquake on 14 April 2010 was a catastrophic magnitude 6.9 Mw earthquake. It killed over 2,000 people and leaving tens of thousands people injured. Esprit Cares Trust (Hong Kong) acted immediately and donated RMB1 million to the Red Cross China for the benefit of the victims of the Qinghai earthquake in the same month.

CHANGING THE WORLD WITH ONE PICTURE

Launched on 8 September 2008 by the Kumulus e.V. organisation and in cooperation with the United Nations (“UN”) Millennium Campaign, the “Chasing the Dream” photo contest was launched with the motto “Germany in the light of the eight development goals (“MDG”)” which edc by Esprit once again supported in 2009. This interactive photo contest asked young individuals to stop just being observers and start showing others how they perceive the world. It is our hope that by participating in the photo contest, we could provide a platform for young individuals to express their thoughts, words and pictures, thus bringing UN development goals to a wider audience in Germany.

FOSTERING TALENT

FFC Ratingen & EspritShirts, shorts and socks were developed for the players and goalkeeper of the first Ratingen Women’s Football Club (FFC Ratingen) as part of a project by trainees from design, technical design, engineering and buying. The new colourful and powerful themed Esprit-sponsored home and away uniforms allow the FFC Ratingen to completely stand out from the crowds. The high quality and comfort of the uniforms also allow the FFC Ratingen to perform at their best.

By my valentineThis special Valentine edition which includes a soft cotton panty in mauve for women and dark blue shorts for men both with hand-written poetry evolved from a trainee project. The result was so impressive that the Bodywear division decided to produce the styles for retail.

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05.4 WOULD YOU LIKE TO WORK FOR A COMPANY THAT VALUES ITS EMPLOYEES?

· We are committed to personal integrity and respect for each person.· We do not tolerate discrimination of any kind whether based upon age, colour, disability, marital status, national origin,

citizenship, race, religion, sex, sexual orientation, veteran status or other factors.· We respect employees’ right to collective bargaining.· The above, as well as any possible conflicts of interest, are governed by our Code of Conduct.

KEY EMPLOYEE STATISTICS IN FY 09|10

Share of Female Employees in FY 09|10

Employees by Regionin FY 09|10

Share of Full Time vs Part Time Employees in FY 09|10

Female 82% Male 18%

Permanent 81% Temporary 19% Europe 60% Asia Pacific 33.5%

North America 6.5%

Full time 56% Part time 44%

Share of Employees with Permanent Contractsin FY 09|10

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EMPLOYEE TRAINING AND DEVELOPMENT

We want our employees to grow within Esprit. On one hand, we have the structured management trainee programmes in our headquarters in Ratingen and Hong Kong to breed the young and talented. On the other hand, all our staff are given induction training when they join Esprit. From then onwards, they are encouraged to attend both internal and external workshops. New training programmes are rolled out every few months. The topics covered range from soft skills like how to be good supervisors to technical skills such as IT skills or languages.

Training Days by Region*

8,164

12,105

59

15,000

12,000

3,000

6,000

9,000

0EuropeNo. of days Asia Pacific North

America

* Number of training days is calculated by the total number of one day equivalent of training attended by our employees per region.

BENEFITS

We make every effort into ensuring that employees are fairly compensated for their efforts. In most countries, our staff welfare packages are in line with market practice.

Our staff welfare is multi-facet, for example:· In our Hong Kong office, in addition to the maternity leave given to

female employees, full paid paternity leave is also available to any full time employee whose wife is expecting or has delivered a new baby.

· In our Ratingen headquarters, employees, customers and visitors get to enjoy healthy food without compromising their taste buds because bio-food is served in our e-lounge. Our bio-food has been certified by the Gesellschaft für Ressourcenschutz mbH (GfRS) (Germany) which is an organisation within the European Union that audits the integrity of products from organic agriculture.

INTERNAL PROMOTION

Besides bringing in talents from the outside to reinvigorate the Company, we firmly believe in breeding talents internally. This year, there have been more than 808 internal promotions across all countries. Amongst those, Thomas Kainz, who has been working for Esprit for 15 years was promoted to the position of Country Manager Austria during FY 09|10.

Retention of our staff is another key objective. In every Esprit News, the internal global newsletter, we celebrate those long-serving staff by listing out the number of years they have been in the Esprit family, many over 20 or even 30 years!

INCENTIVES

We want to breed a meritocratic culture as competition leads to excellence. Therefore, on top of the basic staff package, employees receive bonuses and share options subject to their performance.

At the same time, a “Bowling Night” was organized in Australia celebrating exceptional sales results achieved by the Australia stores.

WORKING CAN BE FUN

Life should not be all work. We put our efforts into making life within the Esprit family fun for our staff around the world. We hold countless recreational events every year. An example will be hosting Annual Dinners each year giving every staff an opportunity to celebrate their own achievements and showcase their talents. Individual departments normally have parties celebrating the major festive seasons. Not only that, we have also rented cinemas at times to host Esprit movie-nights. On a day-to-day basis, there are groups of Esprit staff in different parts of the world playing badminton, tennis, lawn bowls and soccer under Company sponsorship.

COMMUNICATION

Communication is fundamental in a global company. Our global newsletter, Esprit News, which updates employees on what is happening within Esprit around the world, is published four times a year. We also use it as a platform to educate our staff. In each newsletter we write about the facts of a country with Esprit footprint, which is almost everywhere. Limited hardcopies of Esprit News are circulated in different departments but we encourage employees to access the newsletter via the intranet.

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05.5 WHO ARE WE TO JUDGE?

“Our THANKS go to ESPRIT for their long term commitment to support cause of Children in need. This support enables us to establish SOS Children‘s Village Alibaug – India in the year 2010. 140 odd children who have lost their families and home will find a new SOS Family and home in the Village. From the Village we will support over 600 children and their families in the neighboring community providing them essential services of Education, Health especially Nutrition and immunization and various livelihood programme. All this is possible because of a committed and responsible partner ESPRIT”

SIDDHARTHA KAUL//DEPUTY SECRETARY GENERAL – ASIA, SOS-KINDERDORF INTERNATIONAL, CONTINENTAL OFFICE FOR ASIA

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Annual Report 09/1006 // CORPORATE GOVERNANCE

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Annual Report 09/10

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06.1 CORPORATE GOVERNANCE REPORT

Esprit is committed to achieving high standards of corporate governance. The Esprit Corporate Governance Code was adopted by the board of directors (the “Board” or the “Director(s)”) of the Company aiming at providing greater transparency, quality of disclosure as well as more effective risk and internal control. The execution and enforcement of the Company’s corporate governance system is monitored by the Internal Audit Department with regular assessments. We believe our commitment in high standard practices will translate into long-term value and ultimately maximising returns to shareholders. Management pledge to building long-term interests for shareholders via, for example, conducting business in a socially responsible and professional manner.

Our commitment to excel in corporate governance is manifested in four major areas, namely, through our ownership structure, ensuring board independence and effectiveness, maximum transparency and disclosure, audit, control and risk management.

OWNERSHIP STRUCTURE

The Company is publicly owned with no controlling shareholder present. This ownership structure minimises any conflicts of interest.

The majority of the Board consists of Independent Directors with less than one third being Executive Directors. In addition, all the Directors bring in a wealth of experience and no controlling shareholder is present on the Board ensuring decisions are made fairly and without conflicts of interest.

BOARD INDEPENDENCE AND EFFECTIVENESS

Protecting shareholder value

The Board’s primary role is to protect and enhance long-term shareholder value. It focuses on the Group’s overall strategic policy, monitors performance and provides proper supervision to ensure proper business conduct and effective management of the highest quality. The Board views that the collective and individual responsibilities of the Directors to all shareholders for the manner in which the affairs of the Company are managed, controlled and operated are important.

Clear distinction between the responsibilities of the Board and management

The Board plays a key role in structuring and monitoring the reporting systems and internal controls, while allowing management substantial autonomy to run and develop the business.

Decisions reserved for the Board are mainly related to:• The long-term objectives and strategy of the Group;• Monitoring the performance of management;• Ensuring that a framework of prudent and effective internal controls

is in place to enable risks to be assessed and managed;• Monitoring the quality and timeliness of external reporting; and• Monitoring the compliance with applicable laws and regulations,

and also with corporate governance policies.

Membership

The Board comprises of nine directors. Following the re-designation of Heinz Jürgen KROGNER-KORNALIK as Non-executive Chairman on 30 June 2010, the Board now comprises of two Executive Directors with the remaining seven being Non-executive Directors, of whom five are independent. The Non-executive Directors come from diverse business and professional backgrounds, ranging from international retailers, apparel industry experts to bankers and professional accountants, bringing with them valuable expertise and experience that promote the best interests of the Group and its shareholders. Independent Non-executive Directors ensure the Board accounts for the interests of all shareholders and subject matters are considered in an objective manner. The Company has received confirmation of independence from each Independent Non-executive Director as set out in Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and continues to consider each of them to be independent.

Under the code provision A.4.1 of the Code on Corporate Governance Practices (the “Code”) as set out in Appendix 14 of the Listing Rules, non-executive directors should be appointed for a specific term, subject to re-election. Non-executive Directors of the Company have not been appointed for a specific term. However, under Bye-law 87 of the Company’s Bye-laws, all Directors, including Non-executive Directors, of the Company are subject to retirement by rotation and re-election in the annual general meeting of the Company (“AGM”) and each Director is effectively appointed under an average term of three years.

Under the Company’s Bye-law 87, one-third of the Directors must retire, thus becoming eligible for re-election at each AGM. This year, Mr Paul CHENG Ming Fun, Mr Alexander Reid HAMILTON and Mr Raymond OR Ching Fai will retire at the forthcoming AGM and all being eligible, offer themselves for re-election. The biographical details of the retiring Directors will be set out in the circular to shareholders of the Company to assist shareholders in making an informed decision on their re-elections. None of the Directors standing for re-election at the forthcoming AGM has a service contract with any member of the Group which is not determinable by the relevant employer within one year without payment of compensation (other than statutory compensation).

Neither Mr Paul CHENG Ming Fun, Mr Alexander Reid HAMILTON nor Mr Raymond OR Ching Fai has entered into a service contract with any member of the Group. They have no fixed term of service with the Company and are subject to retirement by rotation and re-election in accordance with the Company’s Bye-laws.

Board Committees

To oversee particular aspects of the Company’s affairs and to assist in the execution of its responsibilities, the Board has established four Board Committees, namely the Audit Committee, the Nomination Committee, the Remuneration Committee and the General Committee. Terms of reference of the Audit Committee, the Nomination Committee and the Remuneration Committee are available on the Company’s website. A summary of the membership and responsibilities of each committee is included below:

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Audit Committee

MembersAlexander Reid HAMILTON (Chairman)Paul CHENG Ming FunDr Hans-Joachim KÖRBERRaymond OR Ching FaiFrancesco TRAPANI (appointed on 1 January 2010)Jürgen Alfred Rudolf FRIEDRICH (resigned on 1 January 2010)

Responsibilities• Provide an independent review of the effectiveness of the financial

reporting process including the adequacy of the resources, qualifications, experience of staff of the accounting and financial reporting function, and their training programmes and budget and the internal control and risk management systems;

• Review of financial information of the Company; and• Oversee the audit process and perform other duties as assigned by

the Board.

The Audit Committee is provided with sufficient resources to discharge its duties and meets regularly with management, internal auditors and external auditors and reviews their reports. During the financial year, the Audit Committee reviewed the interim results and the annual results of the Group for the year ended 30 June 2010 as well as the accounting principles and practices adopted by the Group. It also reviewed the nature, scope and findings of internal and external audits, and the Company’s treasury activities, liquidity and risk management. Our finance function head, the external auditors, internal auditors and senior management attended the meetings to answer any questions raised by the Audit Committee.

Nomination Committee

MembersPaul CHENG Ming Fun (Chairman)Heinz Jürgen KROGNER-KORNALIKJürgen Alfred Rudolf FRIEDRICH (appointed on 1 January 2010)Dr Hans-Joachim KÖRBERFrancesco TRAPANI (resigned on 1 January 2010)

Responsibilities• Review and recommend the structure, size and composition of the

Board;• Identify and recommend individuals suitably qualified to become

Board member(s);• Assess the independence of Independent Non-executive Directors;• Recommend to the Board on relevant matters relating to the

appointment or re-appointment of Directors and succession planning for Directors;

• Keep under review the leadership needs of the organisation with a view to ensuring the Company to compete effectively in the market place; and

• Make recommendations concerning membership of the Audit Committee, the Remuneration Committee and the General Committee.

In evaluating whether an appointee is suitable to act as a Director, the Board will consider the skills and expertise of the appointee, as well as personal ethics, integrity and the willingness to commit time to the affairs of the Group. Where the appointee is appointed as an Independent Non-executive Director, the Nomination Committee will also consider his/her independence.

Remuneration Committee

MembersRaymond OR Ching Fai (Chairman)Heinz Jürgen KROGNER-KORNALIKAlexander Reid HAMILTONFrancesco TRAPANI

Responsibilities• Recommend to the Board the Group’s policy and structure for all

remuneration of Directors and Senior Management and on the establishment of a formal and transparent procedure for developing policy on such remuneration;

• Determine specific remuneration packages of all Executive Directors and Senior Management;

• Review and approve the compensation payable to Executive Directors and Senior Management in connection with any loss or termination of office or appointment; and those in connection with dismissal or removal of Directors for misconduct;

• Recommend remuneration for Non-executive Directors;• Review and approve performance-based remuneration of Executive

Directors and Senior Management;• Review the design of share incentive schemes for approval by the

Board and shareholders; and• Ensure that no Director or any of his associates is involved in deciding

his own remuneration.

With respect to future share option grants, the Remuneration Committee has adopted a performance benchmarking system based on achievement of the Group’s budget which is approved by the Board for the award of share options to the management.

General Committee

MembersRonald VAN DER VISCHEW Fook AunHeinz Jürgen KROGNER-KORNALIK (resigned on 30 June 2010)

ResponsibilitiesDiscuss, consider and approve routine corporate administrative matters of the Company such as:

• Issue statements regarding unusual movements in price and/or trading volume of the shares of the Company;

• Respond to routine enquiries from The Stock Exchange of Hong Kong Limited relating to the continuing obligations of the Company under the Listing Rules;

• Routine acknowledgement of the notification of dealing in the Company’s securities from the Chairman pursuant to Appendix 10 of the Listing Rules;

• Routine administration of (i) the 2001 Share Option Scheme and (ii) the 2009 Share Option Scheme;

• Issue of new shares upon exercise of share options granted under the share option schemes adopted by the Company;

• Implement share repurchase strategy upon approval by the Board in accordance with the delegated authority;

• Determine at the request of management any person or persons who may be regarded as “relevant employees” pursuant to the Guidelines Regarding Securities Transactions by Employees of the Company; and

• Other administrative matters.

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BOARD INDEPENDENCE AND EFFECTIVENESS (continued)

Board meetings and minutes

The Board conducts at least four regular Board meetings a year and additional meetings are held as and when required to discuss significant events or important issues. Sufficient notice is given for regular Board meetings to all Directors enabling them to attend and reasonable notice will be given in case of special Board meetings. The Group ensures that appropriate and sufficient information is provided to Board members in a timely manner to keep them abreast of the Group’s latest developments thereby assisting them in the discharge of their duties. Minutes of the Board, the Audit Committee, the Nomination Committee, the Remuneration Committee and the General Committee are kept by the Company Secretary, which are open for inspection following reasonable notice by any Director.

Minutes of the Board meetings and Board Committee meetings have been recorded in sufficient detail including any matters considered in the meetings, decisions reached and concerns or queries raised by the Directors or dissenting views expressed. Draft and final versions of minutes of the Board and other Board Committees are sent to all Directors or committee members for comments and records respectively within a reasonable time after the meeting.

The attendance of individual members of the Board and other Board Committees meetings during the financial year ended 30 June 2010 is set out in the table below:

Meetings attended/held

Directors BoardAudit

CommitteeNominationCommittee

Remuneration Committee

General Committee

Executive DirectorsRonald VAN DER VIS 4/4 22/22CHEW Fook Aun 4/4 22/22

Non-executive DirectorsHeinz Jürgen KROGNER-KORNALIK (re-designated as Non-executive Director with effect from 30 June 2010) 4/4 1/1 4/4 22/22Jürgen Alfred Rudolf FRIEDRICH 4/4 2/2* 0/0*

Independent Non-executive DirectorsPaul CHENG Ming Fun 4/4 4/4 1/1Alexander Reid HAMILTON 4/4 4/4 4/4Dr Hans-Joachim KÖRBER 4/4 4/4 1/1Raymond OR Ching Fai 4/4 4/4 4/4Francesco TRAPANI 4/4 2/2# 0/1# 3/4

* Mr FRIEDRICH was appointed as member of Nomination Committee and has resigned as member of Audit Committee, both with effect from 1 January 2010.# Mr TRAPANI was appointed as member of Audit Committee and has resigned as member of Nomination Committee, both with effect from 1 January 2010.

Roles of different Directors

The role of the Board’s Chairman is to provide leadership in order to enable the Board to discharge its function effectively, while the Chief Executive Officer focuses on managing and controlling the business of the Group. The roles of the Board’s Chairman and the Chief Executive Officer are clearly outlined to ensure there is a key distinction between the two positions.

Non-executive Directors on the other hand play an important role in the Audit Committee, the Nomination Committee and the Remuneration Committee to ensure independent and objective views are expressed and to promote critical review and control. The three committees are all chaired by Independent Directors and its members are all Non-executive Directors with a majority being largely independent to avoid conflicts of interest for Executive Directors. The independence of the Board has risen over the years, as shown with the increased number of Independent Directors from three (total of ten Directors) in FY 05|06 to five (total of nine Directors) as it currently stands.

The Board’s prime objective is to increase shareholders’ value in an ethical and sustainable manner. Thus, focuses are placed on selecting the most capable executives to operate the Company. The Board aims to operate in a transparent manner in terms of succession of executive management.

The corporate governance of the Board has been further strengthened with the separation of the roles of the Chairman and the Group CEO on 1 November 2009 and the subsequent redesignation of the Executive Chairman to Non-executive with effect from 30 June 2010.

Professional advice

The Company has established a policy enabling all Directors to seek independent professional advice in appropriate circumstances, at the Company’s expense. The Board provides separate independent professional advice to Directors to assist the relevant Director or Directors to discharge their duties to the Company as and when requested or necessary.

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TRANSPARENCY AND DISCLOSURE

Shareholders engagement

Shareholders holding not less than one-tenth of the paid-up capital of the Company carrying the right of voting at general meetings of the Company can submit a signed written requisition, specifying the objectives, to the Board or the Company Secretary to require the convening of a special general meeting (“SGM”) and deposit the requisition at the Company’s Hong Kong head office at 43/F, Enterprise Square Three, 39 Wang Chiu Road, Kowloon Bay, Kowloon, Hong Kong.

Voting by poll

The Company’s shareholders are adequately informed of their rights and the procedures to demand voting by poll in general meetings at which their approvals are sought through disclosure in the Company’s circulars to shareholders.

At the 2009 AGM, the Chairman of the meeting demanded voting by poll on all resolutions put forth at the meeting. The procedures for demanding a poll by the shareholders were set out in the circular sent to the shareholders in the time stipulated and were explained to the shareholders on commencement of the 2009 AGM. Tricor Secretaries Limited, the Company’s branch share registrar in Hong Kong, was appointed as the scrutineer for voting by poll at the 2009 AGM to ensure the votes were properly counted.

While it was only since 1 January 2009 that Rule 13.39(4) has become effective which sets out that any vote of shareholders at a general meeting must be taken by poll, we have been voting by poll on all resolutions since 2003.

Transparency of information

The Company recognises the importance of timely and non-selective disclosure of information. Latest information on the Company including annual and interim reports, announcements and press releases, presentations, and webcasts are updated on Esprit’s Investor Relations website (www.espritholdings.com) in a timely manner.

Esprit actively distributes information on the final and interim results to shareholders through email alerts. In addition, a press conference is organised to ensure that members of the public has access to first-hand information on the results announcement. A live webcast is available along with an archive of the webcast on Esprit’s Investor Relations website so that the results presentation is easily and readily accessible to individuals all over the world in English.

Esprit is committed to a timely disclosure of information. For instance, final results are announced around 2 months from year end and interim results around 1 month from period end. Aside from annual and interim reports, since 2009 Esprit has voluntarily commenced releasing quarterly sales update to further increase the transparency of the Company. Since 2004, Esprit has adopted the International Financial Reporting Standards in order for the financial results to be comprehended by international audiences in a consistent manner. Another illustration of the Company’s efforts in enhancing shareholders’ understanding in its operation is the inclusion of a glossary of the terms commonly used within Esprit since last year’s Annual Report.

Maintaining a two-way communication with shareholders is one of the main goals of Esprit and the Company’s AGM is one platform for shareholders to exchange views directly with the Board. Poll results are made publicly available on the same day of the meeting, typically in the space of a few hours, again to ensure the timely disclosure of information.

Pro-active investor relations

To ensure our investors have a better understanding of the Company, our management engages in a pro-active investor relations programme. Our Group CFO and Investor Relations Department communicate with research analysts and institutional investors in an on-going manner. In addition, our Executive Directors meet with research analysts and the press after our results announcements, attend major investors’ conferences and participate in international non-deal roadshows to communicate the Company’s financial performance and global business strategy.

82


TRANSPARENCY AND DISCLOSURE (continued)

Conferences attended in FY 09|10

Month Event Organiser Location

August 2009 FY 08|09 Post Final Results Roadshow Credit Suisse Hong KongMorgan Stanley

August-September 2009 UBS Best of Asia Conference 2009 UBS New YorkLondon

September 2009 CLSA 16th Investors Forum CLSA Hong KongOctober 2009 Non-Deal Roadshow Daiwa TokyoNovember 2009 CLSA Consumer Access Day CLSA Hong KongNovember 2009 Morgan Stanley Asia Pacific Summit 2009 Morgan Stanley SingaporeNovember 2009 Deutsche Bank Access Greater China Corporation Days Deutsche Bank Hong KongDecember 2009 Non-Deal Roadshow Macquarie Sydney

MelbourneFebruary/March 2010 FY 09|10 Post Interim Results Roadshow Goldman Sachs Hong Kong

JP Morgan New YorkDeutsche Bank LondonHSBC SingaporeMitsubishi UFJ Tokyo

March 2010 CSFB Asian Investment Conference 2010 CSFB Hong KongApril 2010 Macquarie China Conference 2010 Macquarie Hong KongMay 2010 Morgan Stanley Investor Summit 2010 Morgan Stanley Hong KongMay 2010 Bank of America Merrill Lynch Asian STARS 2010 Merrill Lynch SingaporeJune 2010 UBS Consumer Day 2010 UBS Hong Kong

Awards in FY 09|10

Month Recognition Awarding party

August 2009 Top 500 Global Chinese Enterprises 2009 (Ranked 200) World Eminence Chinese Business Association

September 2009 Silver Awards, Best Overall Annual Report International ARC Awards(Retail Fashion Category)

November 2009 2009 HKMA Best Annual Reports Awards, The Hong Kong Management “Citation for Design” sub-category Association

November 2009 Asia’s Best Companies 2009 Finance Asia“Best Consumer Company in Asia”“Best Corporate Governance in Hong Kong”“Best Managed Company (ranked 3rd) in Hong Kong”

December 2009 Hong Kong Corporate Governance Excellence Awards 2009, The Chamber of Hong Kong “Main Board Companies: Hang Seng Index Constituent Companies” category Listed Companies

December 2009 Hong Kong Outstanding Enterprises of 2009 Economic DigestDecember 2009 Platinum Award for All-Round Excellence in Financial Performance, The Asset

Management, Corporate Governance, Social Responsibility, Environmental Responsibility and Investor Relations

January 2010 Global Chinese Business 1000 YaZhou ZhouKanHong Kong Region – Top 20

May 2010 Best Mid-Cap in Hong Kong (ranked 2nd) Finance AsiaBest Investor Relations in Hong Kong (ranked 6th)

June 2010 6th Corporate Governance Asia Recognition Awards 2010 – The Best of Asia Corporate Governance Asia

In November 2009, our Deputy Chairman, Mr Paul CHENG Ming Fun, was awarded the “Director of the Year Award” in the Hang Seng Index Constituents – Non-Executive Director category by The Hong Kong Institute of Directors.

83


American Depositary Receipt Programme

During the year, the Company has successfully established a Level 1 sponsored American Depositary Receipt programme with details as stated hereunder.

Symbol ESPGY

CUSIP 29666V204Ratio 1 ADR: 2 Ordinary sharesCountry Hong KongEffective Date 18 November 2009DR ISIN US29666V2043Depositary BNY Mellon

Since the establishment in November 2009, the number of outstanding ADRs has increased by over 40% as at 30 June 2010.

Compliance with the Code on Corporate Governance Practices

The Company has applied the principles and complied with the Code throughout the year ended 30 June 2010, except that: (i) Non-executive Directors of the Company do not have specific terms of appointment as detailed above (code provision A.4.1); and (ii) the roles of chairman and chief executive officer is performed by the same individual as noted below (code provision A.2.1).

The Company is now in compliance with code provision A.2.1 of the Code. With effect from 1 November 2009, Mr Ronald VAN DER VIS has been appointed as the new Group CEO, and Mr Heinz Jürgen KROGNER-KORNALIK has stepped down from his position as Group CEO and remains in his role as Executive Chairman until his re-designation as Non-executive Chairman with effect from 30 June 2010.

The Esprit Corporate Governance Code has been adopted by the Board of the Company throughout the financial year ended 30 June 2010 which ensures greater transparency and quality of disclosure as well as more effective risk control.

AUDIT, CONTROL AND RISK MANAGEMENT

A sound internal control system minimises the Group’s risk exposure while facilitating the effectiveness and efficiency of its operations. The system is independently reviewed on an on-going basis so that practical and effective control systems are implemented. Such controls aim to provide reasonable assurance in protecting material assets and in identifying, monitoring and managing risks associated with its business activities. The Group has implemented practical and effective control systems including:

• A tailored organisational and governance structure with clearly defined lines of responsibility;

• Effective budgeting and forecasting systems for performance measurement and monitoring of business units;

• A quarterly review of performance by the Audit Committee and the Board;

• Global protection of the Group’s intellectual property rights;• Group wide insurance programs as a measure to minimise risks;

and• A global cash management system for the enhancement of control

and yield of cash assets.

In addition, the on-going risk assessment also serves as a mechanism that enables us to maintain the strength in our internal control system.

Internal audit function

The Company’s Internal Audit function (“Internal Audit”) is responsible for performing regular and systematic reviews of internal control system. The reviews provide reasonable assurance that the internal control system continues to operate satisfactorily and effectively within the Group and the Company. The attainment of such objectives involves the following activities being carried out by Internal Audit:

• Reviewing and appraising the soundness, adequacy and application of accounting, financial and other controls and promoting effective control in the Group and the Company;

• Ascertaining the extent of compliance with established policies, procedures and statutory requirements;

• Ascertaining the extent to which the Group’s and the Company’s assets are accounted for and safeguarded from losses of all kinds;

• Appraising the reliability and usefulness of information for reporting to management;

• Recommending improvements to the existing system of internal control; and

• Carrying out investigations and special reviews requested by management and/or the Audit Committee of the Company.

As an example, a High Level Risk Analysis is conducted every three years to identify and document any risks and risk control measures. These risk control measures are tested annually by the Internal Audit team and findings are reported to the Audit Committee on an annual basis. To supplement the in-house Internal Audit, an outside professional firm is appointed to perform periodic internal audits and the reports are presented to the Audit Committee.

84


AUDIT, CONTROL AND RISK MANAGEMENT (continued)

Other control and management

The Company has a Code of Conduct which sets out the rules applicable in matters of professional ethics, with a view to promote responsible and ethical practice in the conduct of its business. The Code of Conduct is made available to every employee of the Company to ensure a unified and consistent practice. Furthermore, the Company has established written guidelines in respect to securities transactions by relevant employees to ensure there are no improper dealings.

The Company has adopted a Code of Conduct regarding Directors’ securities transactions on terms no less exacting than the required standard set out in the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in Appendix 10 of the Listing Rules.

The Company has made specific enquiry with all Directors and all of them confirmed that, for the financial year ended 30 June 2010, they have complied with the required standard set out in the Model Code.

In addition to its investors, the Company is concerned about other stakeholders and for years has factored in corporate social responsibility into every business decision. In an effort to provide more clarity on the Company’s corporate social responsibility efforts, more details have been incorporated into this Annual Report within 05 Sustainability to Esprit.

DIRECTORS’ RESPONSIBILITIES FOR THE CONSOLIDATED FINANCIAL STATEMENTS

The Directors are responsible for overseeing the preparation of the consolidated financial statements for the year ended 30 June 2010, to ensure that they give a true and fair view of the state of affairs of the Group and of its profit and cash flows for that financial year. In reviewing the consolidated financial statements for the year ended 30 June 2010, the Directors are satisfied that Management have selected appropriate accounting policies, applied them consistently in accordance with the International Financial Reporting Standards and made judgments and estimates that are prudent and reasonable, and have prepared the consolidated financial statements on the going concern basis.

The Directors are responsible for ensuring the maintenance of proper accounting records, safeguarding of the assets of the Company and taking reasonable steps for the prevention and detection of fraud and other irregularities.

AUDITORS’ REMUNERATION

A summary of fees for audit and non-audit services to the external auditors for the financial years ended 30 June 2010 and 30 June 2009 is as follows:

Nature of the services2010

HK$ million2009

HK$ million

Audit services 14 13Other services 8* 1#

22 14

* Non-audit service fees incurred for the year ended 30 June 2010 were

mainly for acquisition of 51% interest in the China joint venture, IT system

implementation, tax compliance and related services, and advisory services in

relation to employee benefits.# Non-audit service fees incurred for the year ended 30 June 2009 were mainly

for tax compliance and related services, and advisory services in relation to

employee benefits and IT system implementation.

85


06.2 REPORT OF THE DIRECTORS

The Directors have pleasure in presenting their annual report and the audited consolidated financial statements for the year ended 30 June 2010.

PRINCIPAL ACTIVITIES

The Company is an investment holding company. The activities of the principal subsidiaries are shown in note 32 to the consolidated financial statements. The Group is principally engaged in wholesale and retail distribution and licensing of quality fashion and life-style products designed under its own internationally-known Esprit brand name.

RESULTS AND APPROPRIATIONS

The results of the Group and appropriations of the Company are set out in the consolidated income statement on page 101 and in the accompanying notes to the consolidated financial statements.

The interim dividend of HK$0.74 per share, with an option to receive in form of new fully paid shares of the Company, totaling HK$946 million was paid on 12 April 2010. 5,973,081 ordinary shares were issued at a dividend reinvestment price of HK$55.97 amounting to approximately HK$334 million on 12 April 2010 pursuant to the scrip dividend reinvestment scheme for the interim dividend. Net cash of approximately HK$612 million was paid for the interim dividend on 12 April 2010.

The Directors recommend the payment of a final dividend of HK$0.67 per share with an option to receive the dividend in form of new fully paid shares of the Company. Details are set out in note 10 to the consolidated financial statements.

RESERVES

Movements in reserves of the Group and the Company during the year are set out in the consolidated statement of changes in equity on page 105 and in note 31 to the consolidated financial statements respectively.

SHARE CAPITAL

During the year, 4,875,000 (2009: 4,607,000) ordinary shares of HK$0.10 each were issued in relation to the share options exercised by Directors and employees under the share option scheme of the Company adopted on 26 November 2001 at exercise prices in the range of HK$14.60 to HK$47.10 each (representing a premium in the range of HK$14.50 to HK$47.00 each) and no ordinary share of HK$0.10 each was issued in relation to the share option scheme of the Company adopted on 10 December 2009. Further details of movements in share capital of the Company are set out in note 21 to the consolidated financial statements.

During the year, the Company issued 31,347,945 ordinary shares pursuant to the scrip dividend reinvestment scheme for the final dividend and the mandatory scrip dividend for the special dividend for the year ended 30 June 2009. 5,973,081 ordinary shares were issued pursuant to the scrip dividend reinvestment scheme for the interim dividend for the year ended 30 June 2010.

FINANCIAL SUMMARY

A summary of the consolidated results and the consolidated balance sheets of the Group for the last ten financial years is set out on pages 144 and 145 respectively.

PROPERTY, PLANT AND EQUIPMENT

Details of movements in property, plant and equipment of the Group during the year are set out in note 15 to the consolidated financial statements.

PENSION SCHEMES

Particulars of pension schemes of the Group are set out in note 12 to the consolidated financial statements.

PRINCIPAL SUBSIDIARIES

Particulars of the Company’s principal subsidiaries as at 30 June 2010 are set out in note 32 to the consolidated financial statements.

CHARITABLE DONATIONS

During the year, the Group made charitable donations totaling HK$9.5 million.

Particulars of the charitable initiatives undertaken by the Group are set out in the section headed “Sustainability to Esprit” on pages 63 to 74 to this report.

DIRECTORS

The Directors of the Company during the financial year and up to the date of this report are:

Executive Directors

Ronald VAN DER VIS (Group Chief Executive Officer)CHEW Fook Aun (Group Chief Financial Officer)

Non-executive Directors

Heinz Jürgen KROGNER-KORNALIK (Non-executive Chairman)Jürgen Alfred Rudolf FRIEDRICH

Independent Non-executive Directors

Paul CHENG Ming Fun (Deputy Chairman)Alexander Reid HAMILTONDr Hans-Joachim KÖRBERRaymond OR Ching FaiFrancesco TRAPANI

The Company has received written confirmation from each of the Independent Non-executive Directors confirming their independence pursuant to Rule 3.13 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”), and considers them to be independent.

86


DIRECTORS AND SENIOR MANAGEMENT PROFILE

Executive Directors

Ronald VAN DER VIS, aged 42, has been appointed as Executive Director on 22 June 2009 and was appointed as Group Chief Executive Officer on 1 November 2009. He is responsible for the overall management and control of the business of the Group. He has over 10 years experience as chief executive officer in brand building and retail in an international environment. He holds a Bachelor Degree in Business Administration from Nyenrode University, Netherlands, and a Master of Business Administration Degree (with Honours) from the Manchester Business School, University of Manchester, United Kingdom. Before joining the Company, Mr VAN DER VIS had worked for over 10 years in various senior management positions in Pearle Europe B.V., a leading international optical retail group and had been serving as its chief executive officer since January 2004. Mr VAN DER VIS is an independent non-executive director of Sonova Holding AG.

CHEW Fook Aun, aged 48, has been an Executive Director and Group Chief Financial Officer since 1 February 2009. He has over 25 years of experience in accounting, auditing and finance in the United Kingdom and Hong Kong. He is a graduate of the London School of Economics and Political Science of the University of London in the United Kingdom and holds a Bachelor of Science (Economics) degree from the University of London. Mr CHEW is the Vice President and a Council member of the Hong Kong Institute of Certified Public Accountants (“HKICPA”). Mr CHEW is also a fellow member of the HKICPA and the Institute of Chartered Accountants in England and Wales. He is a member of the advisory committee of the Securities and Futures Commission, the corruption prevention advisory committee of the Independent Commission Against Corruption, the standing committee on company law reform of the Hong Kong Companies Registry and the Financial Reporting Council of Hong Kong. Mr CHEW was an executive director and chief financial officer of The Link Management Limited, manager of The Link Real Estate Investment Trust, from 1 February 2007 to 16 January 2009. He was also the chief financial officer of Kerry Properties Limited from 1996 to 2004, a director of corporate finance for Kerry Holdings Limited from 1998 to 2004 and the executive director responsible for the property portfolio for Kyard Limited from 2004 to 2007.

Non-executive Directors

Heinz Jürgen KROGNER-KORNALIK, aged 69, is a Non-executive Director and the Chairman of the Board. He has been with the Group since January 1995. He became Chairman of the Board with effect from 5 December 2006. He was Group Chief Executive Officer from 1 November 2002 until he handed over the role and responsibilities of Group Chief Executive Officer to Mr Ronald VAN DER VIS on 1 November 2009 and remained as Executive Chairman until his re-designation as Non-executive Chairman on 30 June 2010. In his role as Non-executive Chairman, Mr KROGNER is primarily responsible for the overall corporate direction and strategy of the Group and providing leadership to the Board to discharge its functions effectively. He possesses a degree in business administration and industrial engineering. He was a consultant with Kurt Salmon Associates in a variety of areas, including production, organization, marketing, strategy and brand positioning, as well as with several textile firms, always in executive positions, before joining the Group.

Paul CHENG Ming Fun, aged 73, has been an Independent Non-executive Director of the Company since November 2002 and became Deputy Chairman of the Company effective from 20 July 2008. Mr CHENG is also an independent non-executive director of several companies which are listed on The Stock Exchange of Hong Kong Limited, and the AIM Board of the London Stock Exchange. He was a former member of the Hong Kong Legislative Council as well as Chairman of Inchcape Pacific Limited, N M Rothschild & Sons (Hong Kong) Ltd., The Link Management Limited, the Hong Kong General Chamber of Commerce, and the American Chamber of Commerce in Hong Kong. He is currently an Honorary Steward of the Hong Kong Jockey Club.

Jürgen Alfred Rudolf FRIEDRICH, aged 72, founded Esprit’s European operations in 1976 and has been a Non-executive Director of the Company since 1997. He has over 32 years of experience in the apparel distribution and marketing business and is currently retired in Switzerland.

Alexander Reid HAMILTON, aged 68, has been an Independent Non-executive Director of the Company since August 1995. He is also a director of CITIC Pacific Limited, China Cosco Holdings Company Limited, Shangri-La Asia Limited, Octopus Cards Limited and a number of other Hong Kong companies. He was a partner of Price Waterhouse with whom he practiced for 16 years.

Dr Hans-Joachim KÖRBER, aged 64, has been an Independent Non-executive Director of the Company since May 2008. Dr KÖRBER has 32 years of experience in finance & accounting, controlling, logistics and IT, including 23 years of experience in retailing. He graduated as Master Brewer in brewing technology and earned a doctor degree in business management from Technical University of Berlin, Germany. Dr KÖRBER was the former Chairman and Chief Executive Officer of Metro AG, one of the world’s largest retailers, until his retirement at the end of 2007. He is a director of Air Berlin PLC, Sysco Corporation and WEPA Industrieholding SE.

Raymond OR Ching Fai, aged 60, has been an Independent Non-executive Director of the Company since 1996. He is an executive director, chief executive officer and vice chairman of China Strategic Holdings Limited, an independent non-executive director and a vice chairman of G-Resources Group Ltd. and a director of 2009 East Asian Games (Hong Kong) Limited. He was the former vice chairman and chief executive of Hang Seng Bank Limited, the former chairman of Hang Seng Life Limited and a director of The Hongkong and Shanghai Banking Corporation Limited, Cathay Pacific Airways Limited and Hutchison Whampoa Limited until his retirement in May 2009.

Francesco TRAPANI, aged 53, has been appointed an Independent Non-executive Director of the Company since December 2008. Mr TRAPANI has over 22 years of experience in the luxury industry. He graduated with a degree in economics from the University of Naples and studied business administration at the New York University. Mr TRAPANI is the chief executive officer of the Bulgari Group since 1984, who has since led the Bulgari Group to become one of today’s leading global players in the luxury market offering world famous fine jewellery, watches, accessories, fragrances and skincare. Bulgari SpA is listed on the Italian Stock Exchange. Mr TRAPANI is also deputy chairman of the board of directors of Altagamma, the association of Italian companies operating in the high-end of the market.

87


Senior Management

Bella CHHOA Peck Lim, aged 40, is Company Secretary and Senior Vice President – Group Legal and Compliance. She joined the Group in March 2006, has been overseeing the Group’s legal, company secretarial and tax compliance matters. Ms CHHOA is a solicitor qualified to practice in Hong Kong. Prior to joining the Group, she had been the company secretary of another company listed on The Stock Exchange of Hong Kong Limited for a number of years. She graduated from the University of Hong Kong with a degree in law in 1993. She also has a master of business administration degree from the Chinese University of Hong Kong.

Udo GREISER, aged 53, is the Chief Product Officer edc and Head of edc. He is responsible for the planning and execution of a global product strategy for edc. Mr GREISER began his professional career in the consumer electronics sector in 1984, where he gained his expertise in the areas of sales and distribution in retail, of which his last position was Managing Director. In 1997 he joined the Group as Commercial Agent for the launch of wedc. In 2002 he was promoted to the Sales Manager Germany for wedc, appointed as Global Business Manager wedc in 2003 and was appointed as the Senior Vice President edc in 2007.

John GUNN, aged 54, is President Americas. He rejoined the Group in May 2009, and manages the overall business strategy of the North and South American region. During his 36 years of experience in the apparel industry, Mr GUNN has held various leadership positions at global companies. Prior to rejoining the Group, he was the executive vice president of Tommy Hilfiger where he worked for 9 years. Prior to this, he was general manager of InWear Canada and vice president wholesale and retail Esprit Canada. Mr GUNN was born in Aberdeen, Scotland and attended the Aberdeen Grammar School for boys and Aberdeen Technical College.

Wolfram HAIL, aged 51, is President Asia Pacific. He joined the Group in August 2007. He is in charge of the overall business strategy of Asia Pacific region of the Esprit Group. Prior to joining the Group, he had worked with various reputable global apparel companies, all in senior management roles. He has 27 years of extensive experience in the apparel industry. He holds a Master of Business Administration degree (Diplom-Kaufmann) with the University of Cologne.

Colin HENRY, aged 45, has been working as Chief Product Officer Esprit since April 2010. From 1984 to 1997 he held various senior commercial roles for Marks and Spencer followed by a position as Managing Director at Coats Viyella PLC from 1997 to 2000. From 2000 to 2003 he was Senior Vice President Brand Management for Polo Ralph Lauren Corporation (Europe). Before he joined the Group he was Senior Vice President Design and Marketing for Nike and Umbro PLC.

Tanya TODD, aged 47, is Chief Operating Officer. She is responsible for global sourcing and supply chain, research and development, quality management and sustainability. She joined the Group in the second quarter of calendar year 2010 and has 26 years of experience in fashion apparel retailing. Prior to joining the Group she was a board director for C&A in the role of chief merchandising officer, and before that she was buying director of the Mothercare. She holds a Bachelor of arts degree from Durham University and a Master of business administration in retailing and wholesaling from the University of Stirling.

Gert VAN DE WEERDHOF, aged 44, is Chief Retail Officer. He is responsible for the global retail business of the Group. Prior to joining the Group in July 2010, he was the CEO and previously Vice President of Pearle Europe B.V. where he worked for 6 years. Mr VAN DE WEERDHOF started his career in leading FMCG companies and has since gained extensive management experience in sales, marketing and general management. He holds a Bachelor degree in Economics and Business from the Vrije Universiteit in Amsterdam, Netherlands.

Ernst-Peter VOGEL, aged 45, is Deputy Chief Financial Officer of the Group. He is primarily responsible for the Group’s operational finance functions including the Group’s statutory and management reporting as well as the Global IT functions. He joined the Group in 2003 as Senior Vice President – Finance Europe and has been overseeing various global finance projects of the Group in the past years. He has over 10 years of extensive experience in finance and tax matters and possesses the qualification as a German CPA and tax advisor. He holds a Master of Business Administration degree (Diplom-Kaufmann) with the University of Frankfurt. Prior to joining the Group, he headed the finance team of an international lifestyle group.

DIRECTORS’ EMOLUMENTS

A Remuneration Committee currently comprising of three Independent Non-executive Directors and one Non-executive Director has been established to make recommendations to the Board on the Group’s policy and structure for all remuneration of Directors and senior management. The Remuneration Committee is responsible for determining the specific remuneration packages of all Executive Directors and senior management and to make recommendations of remuneration for Non-executive Directors to the Board. No individual Director or senior management would be involved in deciding his own remuneration.

The fundamental policy of the Group’s remuneration and incentive scheme is to link total compensation of Executive Directors, senior management and employees with the achievement of annual and long-term corporate goals and objectives. Remuneration package is performance-based and takes into account business performance, market practice and competitive market conditions in order to attract, motivate and retain talent. The Remuneration Committee will consult with the Chairman of the Board and the Chief Executive Officer in respect of their recommendations in determining the remuneration of Executive Directors and senior management. The recommended remuneration package comprises of salaries, bonus agreements, discretionary bonuses and long-term incentive plans.

Non-executive Directors are compensated with the aim to fairly represent their efforts and time dedicated to the Board and various committee meetings. The recommended remuneration package comprises of annual directorship fee and fee for representation on Board committees.

The remuneration of all the Directors during the financial year, excluding Directors’ interests in share options of the Company which are detailed in “Share Options” section below, is set out in note 13 to the consolidated financial statements.

Particulars of the Directors’ and senior management’s emoluments disclosed pursuant to Section 161 of the Companies Ordinance and Appendix 16 of the Listing Rules are set out in note 13 to the consolidated financial statements.

88


SHARE OPTIONS

2001 Share Option Scheme

The Company adopted a share option scheme on 26 November 2001 (the “2001 Share Option Scheme”). Particulars of the 2001 Share Option Scheme are set out in note 21 to the consolidated financial statements.

Details of the grant of share options and a summary of the movements of the outstanding share options during the financial year under the 2001 Share Option Scheme are as follows:

Directors

Ronald VAN DER VIS (through Pisces Investments Limited, of which Pisces Trust controlled 100% share interest. Mr Ronald VAN DER VIS is the settlor of the trust which beneficiaries are Mr Ronald VAN DER VIS, his spouse, Eef WOLTERS e/v VAN DER VIS and his child Floris Maximilian Pieter Daniel VAN DER VIS.)

Number of share options

Date of grant(dd/mm/yyyy)

Exercise price(HK$)

Vesting date(dd/mm/yyyy)

Exercise period(dd/mm/yyyy)

As at01/07/2009 Granted Exercised Lapsed

As at30/06/2010

22/06/2009 46.45 22/06/2010 22/06/2010 – 21/06/2015 1,600,000 – – – 1,600,00022/06/2011 22/06/2011 – 21/06/2015 1,600,000 – – – 1,600,00022/06/2012 22/06/2012 – 21/06/2015 1,600,000 – – – 1,600,00022/06/2013 22/06/2013 – 21/06/2015 1,600,000 – – – 1,600,00022/06/2014 22/06/2014 – 21/06/2015 1,600,000 – – – 1,600,000

In aggregate 8,000,000 – – – 8,000,000

CHEW Fook Aun



Exercise price(HK$)




As at30/06/2010

09/02/2009 41.70 09/02/2010 09/02/2010 – 08/02/2015 240,000 – – – 240,00009/02/2011 09/02/2011 – 08/02/2015 240,000 – – – 240,00009/02/2012 09/02/2012 – 08/02/2015 240,000 – – – 240,00009/02/2013 09/02/2013 – 08/02/2015 240,000 – – – 240,00009/02/2014 09/02/2014 – 08/02/2015 240,000 – – – 240,000

09/02/2010 56.90 09/02/2011 09/02/2011 – 08/02/2016 – 180,000 – – 180,00009/02/2012 09/02/2012 – 08/02/2016 – 180,000 – – 180,00009/02/2013 09/02/2013 – 08/02/2016 – 180,000 – – 180,00009/02/2014 09/02/2014 – 08/02/2016 – 180,000 – – 180,00009/02/2015 09/02/2015 – 08/02/2016 – 180,000 – – 180,000

In aggregate 1,200,000 900,000 – – 2,100,000

89


2001 Share Option Scheme (continued)

Directors (continued)

Heinz Jürgen KROGNER–KORNALIK



Exercise price(HK$)




As at30/06/2010

26/11/2003 24.20 26/11/2008 26/11/2008 – 25/11/2011 600,000 – 600,000 – –

27/11/2004 42.58 27/11/2008 27/11/2008 – 26/11/2010 600,000 – – – 600,00027/11/2009 27/11/2009 – 26/11/2010 600,000 – – – 600,000

07/02/2007 83.00 07/02/2008 07/02/2008 – 06/02/2013 160,000 – – – 160,00007/02/2009 07/02/2009 – 06/02/2013 160,000 – – – 160,00007/02/2010 07/02/2010 – 06/02/2013 160,000 – – – 160,00007/02/2011 07/02/2011 – 06/02/2013 160,000 – – – 160,00007/02/2012 07/02/2012 – 06/02/2013 160,000 – – – 160,000

11/02/2008 102.12 11/02/2009 11/02/2009 – 10/02/2014 120,000 – – – 120,00011/02/2010 11/02/2010 – 10/02/2014 120,000 – – – 120,00011/02/2011 11/02/2011 – 10/02/2014 120,000 – – – 120,00011/02/2012 11/02/2012 – 10/02/2014 120,000 – – – 120,00011/02/2013 11/02/2013 – 10/02/2014 120,000 – – – 120,000

09/02/2009 41.70 09/02/2010 09/02/2010 – 08/02/2015 120,000 – – – 120,00009/02/2011 09/02/2011 – 08/02/2015 120,000 – – – 120,00009/02/2012 09/02/2012 – 08/02/2015 120,000 – – – 120,00009/02/2013 09/02/2013 – 08/02/2015 120,000 – – – 120,00009/02/2014 09/02/2014 – 08/02/2015 120,000 – – – 120,000

In aggregate 3,800,000 – 600,000 – 3,200,000

Employees & Consultants



Exercise price (HK$)




As at30/06/2010

26/11/2002 14.60 26/11/2006 26/11/2006 – 25/11/2011 40,000 – 40,000 – –26/11/2007 26/11/2007 – 25/11/2011 40,000 – 40,000 – –

26/11/2003 24.20 26/11/2006 26/11/2006 – 25/11/2011 285,000 – 135,000 – 150,00026/11/2007 26/11/2007 – 25/11/2011 405,000 – 100,000 – 305,00026/11/2008 26/11/2008 – 25/11/2011 670,000 – 230,000 – 440,000

23/12/2003 24.45 23/12/2006 23/12/2006 – 22/12/2011 120,000 – 120,000 – –23/12/2007 23/12/2007 – 22/12/2011 120,000 – – – 120,00023/12/2008 23/12/2008 – 22/12/2011 120,000 – – – 120,000

27/11/2004 42.58 27/11/2005 27/11/2005 – 26/11/2010 150,000 – 150,000 – –27/11/2006 27/11/2006 – 26/11/2010 560,000 – 440,000 – 120,00027/11/2007 27/11/2007 – 26/11/2010 860,000 – 560,000 – 300,00027/11/2008 27/11/2008 – 26/11/2010 1,630,000 – 1,150,000 – 480,00027/11/2009 27/11/2009 – 26/11/2010 1,630,000 – 670,000 240,000 720,000

23/12/2004 47.10 23/12/2005 23/12/2005 – 22/12/2010 90,000 – 90,000 – –23/12/2006 23/12/2006 – 22/12/2010 90,000 – 90,000 – –23/12/2007 23/12/2007 – 22/12/2010 90,000 – 90,000 – –23/12/2008 23/12/2008 – 22/12/2010 90,000 – 90,000 – –23/12/2009 23/12/2009 – 22/12/2010 90,000 – 90,000 – –

90








As at30/06/2010

28/11/2005 55.11 28/11/2006 28/11/2006 – 27/11/2011 105,000 – – – 105,00028/11/2007 28/11/2007 – 27/11/2011 105,000 – – – 105,00028/11/2008 28/11/2008 – 27/11/2011 345,000 – – – 345,00028/11/2009 28/11/2009 – 27/11/2011 345,000 – – – 345,00028/11/2010 28/11/2010 – 27/11/2011 345,000 – – 45,000 300,000

02/12/2005 56.20 02/12/2006 02/12/2006 – 01/12/2011 100,000 – – – 100,00002/12/2007 02/12/2007 – 01/12/2011 140,000 – – – 140,00002/12/2008 02/12/2008 – 01/12/2011 280,000 – – 60,000 220,00002/12/2009 02/12/2009 – 01/12/2011 220,000 – – – 220,00002/12/2010 02/12/2010 – 01/12/2011 220,000 – – – 220,000

23/12/2005 56.50 23/12/2006 23/12/2006 – 22/12/2011 90,000 – – – 90,00023/12/2007 23/12/2007 – 22/12/2011 90,000 – – – 90,00023/12/2008 23/12/2008 – 22/12/2011 90,000 – – – 90,00023/12/2009 23/12/2009 – 22/12/2011 90,000 – – – 90,00023/12/2010 23/12/2010 – 22/12/2011 90,000 – – – 90,000

27/11/2006 80.60 27/11/2007 27/11/2007 – 26/11/2012 15,000 – – – 15,00027/11/2008 27/11/2008 – 26/11/2012 165,000 – – – 165,00027/11/2009 27/11/2009 – 26/11/2012 165,000 – – – 165,00027/11/2010 27/11/2010 – 26/11/2012 165,000 – – 15,000 150,00027/11/2011 27/11/2011 – 26/11/2012 165,000 – – 15,000 150,000

04/12/2006 79.49 04/12/2007 04/12/2007 – 03/12/2012 150,000 – – – 150,00004/12/2008 04/12/2008 – 03/12/2012 210,000 – – 45,000 165,00004/12/2009 04/12/2009 – 03/12/2012 165,000 – – – 165,00004/12/2010 04/12/2010 – 03/12/2012 165,000 – – – 165,00004/12/2011 04/12/2011 – 03/12/2012 165,000 – – – 165,000

05/12/2006 80.95 05/12/2007 05/12/2007 – 04/12/2012 756,000 – – 220,000 536,00005/12/2008 05/12/2008 – 04/12/2012 796,000 – – 220,000 576,00005/12/2009 05/12/2009 – 04/12/2012 736,000 – – 160,000 576,00005/12/2010 05/12/2010 – 04/12/2012 736,000 – – 160,000 576,00005/12/2011 05/12/2011 – 04/12/2012 736,000 – – 160,000 576,000

07/02/2007 83.00 07/02/2008 07/02/2008 – 06/02/2013 80,000 – – 40,000 40,00007/02/2009 07/02/2009 – 06/02/2013 80,000 – – 40,000 40,00007/02/2010 07/02/2010 – 06/02/2013 40,000 – – – 40,00007/02/2011 07/02/2011 – 06/02/2013 40,000 – – – 40,00007/02/2012 07/02/2012 – 06/02/2013 40,000 – – – 40,000

04/12/2007 119.00 04/12/2008 04/12/2008 – 03/12/2013 210,000 – – 45,000 165,00004/12/2009 04/12/2009 – 03/12/2013 165,000 – – – 165,00004/12/2010 04/12/2010 – 03/12/2013 165,000 – – – 165,00004/12/2011 04/12/2011 – 03/12/2013 165,000 – – – 165,00004/12/2012 04/12/2012 – 03/12/2013 165,000 – – – 165,000

SHARE OPTIONS (continued)


Employees & Consultants (continued)

91










As at30/06/2010

05/12/2007 118.70 05/12/2008 05/12/2008 – 04/12/2013 597,000 – – 165,000 432,00005/12/2009 05/12/2009 – 04/12/2013 552,000 – – 120,000 432,00005/12/2010 05/12/2010 – 04/12/2013 552,000 – – 120,000 432,00005/12/2011 05/12/2011 – 04/12/2013 552,000 – – 120,000 432,00005/12/2012 05/12/2012 – 04/12/2013 552,000 – – 120,000 432,000

31/01/2008 100.80 31/01/2009 31/01/2009 – 30/01/2014 960,000 – – 280,000 680,00031/01/2010 31/01/2010 – 30/01/2014 960,000 – – 280,000 680,00031/01/2011 31/01/2011 – 30/01/2014 960,000 – – 280,000 680,00031/01/2012 31/01/2012 – 30/01/2014 960,000 – – 280,000 680,00031/01/2013 31/01/2013 – 30/01/2014 960,000 – – 280,000 680,000

11/02/2008 102.12 11/02/2009 11/02/2009 – 10/02/2014 60,000 – – 30,000 30,00011/02/2010 11/02/2010 – 10/02/2014 30,000 – – – 30,00011/02/2011 11/02/2011 – 10/02/2014 30,000 – – – 30,00011/02/2012 11/02/2012 – 10/02/2014 30,000 – – – 30,00011/02/2013 11/02/2013 – 10/02/2014 30,000 – – – 30,000

09/12/2008 44.25 09/12/2009 09/12/2009 – 08/12/2014 552,000 – – 120,000 432,00009/12/2010 09/12/2010 – 08/12/2014 552,000 – – 120,000 432,00009/12/2011 09/12/2011 – 08/12/2014 552,000 – – 120,000 432,00009/12/2012 09/12/2012 – 08/12/2014 552,000 – – 120,000 432,00009/12/2013 09/12/2013 – 08/12/2014 552,000 – – 120,000 432,000

11/12/2008 45.95 11/12/2009 11/12/2009 – 10/12/2014 756,000 – 160,000 80,000 516,00011/12/2010 11/12/2010 – 10/12/2014 756,000 – – 240,000 516,00011/12/2011 11/12/2011 – 10/12/2014 756,000 – – 240,000 516,00011/12/2012 11/12/2012 – 10/12/2014 756,000 – – 240,000 516,00011/12/2013 11/12/2013 – 10/12/2014 756,000 – – 240,000 516,000

05/02/2009 39.76 05/02/2010 05/02/2010 – 04/02/2015 932,000 – 30,000 210,000 692,00005/02/2011 05/02/2011 – 04/02/2015 932,000 – – 210,000 722,00005/02/2012 05/02/2012 – 04/02/2015 932,000 – – 210,000 722,00005/02/2013 05/02/2013 – 04/02/2015 932,000 – – 210,000 722,00005/02/2014 05/02/2014 – 04/02/2015 932,000 – – 210,000 722,000

09/02/2009 41.70 09/02/2010 09/02/2010 – 08/02/2015 30,000 – – – 30,00009/02/2011 09/02/2011 – 08/02/2015 30,000 – – – 30,00009/02/2012 09/02/2012 – 08/02/2015 30,000 – – – 30,00009/02/2013 09/02/2013 – 08/02/2015 30,000 – – – 30,00009/02/2014 09/02/2014 – 08/02/2015 30,000 – – – 30,000

08/05/2009 51.76 08/05/2010 08/05/2010 – 07/05/2015 160,000 – – – 160,00008/05/2011 08/05/2011 – 07/05/2015 160,000 – – – 160,00008/05/2012 08/05/2012 – 07/05/2015 160,000 – – – 160,00008/05/2013 08/05/2013 – 07/05/2015 160,000 – – – 160,00008/05/2014 08/05/2014 – 07/05/2015 160,000 – – – 160,000

92








As at30/06/2010

22/06/2009 46.45 22/06/2010 22/06/2010 – 21/06/2015 80,000 – – – 80,00022/06/2011 22/06/2011 – 21/06/2015 80,000 – – – 80,00022/06/2012 22/06/2012 – 21/06/2015 80,000 – – – 80,00022/06/2013 22/06/2013 – 21/06/2015 80,000 – – – 80,00022/06/2014 22/06/2014 – 21/06/2015 80,000 – – – 80,000

09/12/2009 53.74 09/12/2010 09/12/2010 – 08/12/2015 – 672,000 – – 672,00009/12/2011 09/12/2011 – 08/12/2015 – 672,000 – – 672,00009/12/2012 09/12/2012 – 08/12/2015 – 672,000 – – 672,00009/12/2013 09/12/2013 – 08/12/2015 – 672,000 – – 672,00009/12/2014 09/12/2014 – 08/12/2015 – 672,000 – – 672,000

11/12/2009 53.90 11/12/2010 11/12/2010 – 10/12/2015 – 399,000 – 12,000 387,00011/12/2011 11/12/2011 – 10/12/2015 – 399,000 – 12,000 387,00011/12/2012 11/12/2012 – 10/12/2015 – 399,000 – 12,000 387,00011/12/2013 11/12/2013 – 10/12/2015 – 399,000 – 12,000 387,00011/12/2014 11/12/2014 – 10/12/2015 – 399,000 – 12,000 387,000

04/02/2010 57.70 04/02/2011 04/02/2011 – 03/02/2016 – 510,000 – – 510,00004/02/2012 04/02/2012 – 03/02/2016 – 510,000 – – 510,00004/02/2013 04/02/2013 – 03/02/2016 – 510,000 – – 510,00004/02/2014 04/02/2014 – 03/02/2016 – 510,000 – – 510,00004/02/2015 04/02/2015 – 03/02/2016 – 510,000 – – 510,000

05/02/2010 55.46 05/02/2011 05/02/2011 – 04/02/2016 – 159,000 – – 159,00005/02/2012 05/02/2012 – 04/02/2016 – 159,000 – – 159,00005/02/2013 05/02/2013 – 04/02/2016 – 159,000 – – 159,00005/02/2014 05/02/2014 – 04/02/2016 – 159,000 – – 159,00005/02/2015 05/02/2015 – 04/02/2016 – 159,000 – – 159,000

10/05/2010 52.61 10/05/2011 10/05/2011 – 09/05/2016 – 120,000 – – 120,00010/05/2012 10/05/2012 – 09/05/2016 – 120,000 – – 120,00010/05/2013 10/05/2013 – 09/05/2016 – 120,000 – – 120,00010/05/2014 10/05/2014 – 09/05/2016 – 120,000 – – 120,00010/05/2015 10/05/2015 – 09/05/2016 – 120,000 – – 120,000

22/06/2010 45.24 22/06/2011 22/06/2011 – 21/06/2016 – 60,000 – – 60,00022/06/2012 22/06/2012 – 21/06/2016 – 60,000 – – 60,00022/06/2013 22/06/2013 – 21/06/2016 – 60,000 – – 60,00022/06/2014 22/06/2014 – 21/06/2016 – 60,000 – – 60,00022/06/2015 22/06/2015 – 21/06/2016 – 60,000 – – 60,000

In aggregate 36,510,000 9,600,000 4,275,000 6,290,000 35,545,000

TOTAL 49,510,000 10,500,000 4,875,000 6,290,000 48,845,000

Notes:

(i) The closing prices of the shares of the Company immediately before the share options granted on 9 December 2009, 11 December 2009, 4 February 2010, 5

February 2010, 9 February 2010, 10 May 2010 and 22 June 2010 were HK$52.80, HK$52.50, HK$57.90, HK$57.70, HK$54.15, HK$49.65 and HK$46.60 respectively.

(ii) The weighted average closing price of the shares immediately before the date of exercise by Mr Heinz Jürgen KROGNER–KORNALIK was HK$58.80.

(iii) The weighted average closing price of the shares immediately before the dates of exercise by the employees and consultants was HK$56.68.

(iv) No share options were cancelled under the 2001 Share Option Scheme during the year ended 30 June 2010.

SHARE OPTIONS (continued)



93


2009 Share Option Scheme

On 10 December 2009, the shareholders has approved at the 2009 Annual General Meeting of the Company a new share option scheme (the “2009 Share Option Scheme”). Details of the grant of share options and a summary of the movements of the outstanding share options during the financial year under the 2009 Share Option Scheme are as follows:



Exercise price(HK$)




As at30/06/2010

19/04/2010 62.21 19/04/2011 19/04/2011 – 18/04/2016 – 160,000 – – 160,00019/04/2012 19/04/2012 – 18/04/2016 – 160,000 – – 160,00019/04/2013 19/04/2013 – 18/04/2016 – 160,000 – – 160,00019/04/2014 19/04/2014 – 18/04/2016 – 160,000 – – 160,00019/04/2015 19/04/2015 – 18/04/2016 – 160,000 – – 160,000

In aggregate – 800,000 – – 800,000

Notes:

(i) The closing price of the shares of the Company immediately before the share options granted on 19 April 2010 was HK$60.30.

(ii) No share options were cancelled under the 2009 Share Option Scheme during the year ended 30 June 2010.

Save as disclosed above, at no time during the year was the Company or its subsidiaries a party to any arrangement that enabled the Directors of the Company or any of their spouses or children under the age of 18 to acquire benefits by means of the acquisition of shares in, or debentures of, the Company or any other body corporate.

ACCOUNTING TREATMENT FOR SHARE OPTIONS

Details of accounting treatment for share options are set out in note 21 to the consolidated financial statements.

DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES

As at 30 June 2010, the interests or short positions of the Directors and chief executives of the Company in the shares, underlying shares and debentures of the Company or any of its associated corporations (within the meaning of Part XV of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (“SFO”)) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and The Stock Exchange of Hong Kong Limited (the “Stock Exchange”) pursuant to the Model Code for Securities Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing Rules, were as follows:

(1) Shares of the Company

Name of directors Capacity

Beneficial interest

in shares

Beneficial interest in unlisted

underlying shares (Note 4)

Total number of shares

Approximate percentage of

aggregate interests to total issued

share capital

Ronald VAN DER VIS Interest of a controlled corporation (Note 1)

– 8,000,000 8,000,000 0.62%

CHEW Fook Aun Beneficial owner – 2,100,000 2,100,000 0.16%

Heinz Jürgen KROGNER–KORNALIK

Beneficial owner – 3,200,000 3,200,000 0.25%

Jürgen Alfred Rudolf Beneficial owner 56,721,076 – 66,771,977 5.18% FRIEDRICH Interest of spouse (Note 2) 50,901 –

Founder of a discretionary trust (Note 3)

10,000,000 –

Notes:

1. The interests of the underlying shares of equity derivatives was held by Pisces Investments Limited of which Pisces Trust controlled 100% share interest. Mr Ronald

VAN DER VIS is the settlor of the trust which beneficiaries are Mr Ronald VAN DER VIS, his spouse, Eef WOLTERS e/v VAN DER VIS and his child Floris Maximilian Pieter

Daniel VAN DER VIS.

2. The shares were held by Mrs Anke Beck FRIEDRICH, the spouse of Mr Jürgen Alfred Rudolf FRIEDRICH.

3. The shares were held by a discretionary trust, JAF Foundation (Switzerland), of which Mr Jürgen Alfred Rudolf FRIEDRICH is the founder.

4. The interests of Directors and chief executives of the Company in the underlying shares of equity derivatives in respect of share options granted to them pursuant to

the 2001 Share Option Scheme are detailed in “Share Options” section above.

5. All interests disclosed above represent long position in the shares and underlying shares of the Company.

94


DIRECTORS’ INTERESTS AND SHORT POSITIONS IN SHARES, UNDERLYING SHARES AND DEBENTURES (continued)

(2) Share Options of the Company

The interests of the Directors and chief executives of the Company in the share options of the Company are detailed in “Share Options” section above.

As at 30 June 2010, save as disclosed above, none of the Directors, chief executives of the Company or their associates had any interests or short positions, whether beneficial or non–beneficial, in the shares, underlying shares or debentures of the Company or any of its associated corporations (within the meaning of Part XV of the SFO) as recorded in the register required to be kept under Section 352 of the SFO or as otherwise notified to the Company and the Stock Exchange pursuant to the Model Code.

DIRECTORS’ INTERESTS IN CONTRACTS

No contracts of significance in relation to the Group’s business to which the Company or any of its subsidiaries was a party and in which a Director of the Company had a material interest, whether directly or indirectly, subsisted at the end of or at any time during the year.

SUBSTANTIAL SHAREHOLDERS’ INTERESTS

As at 30 June 2010, the following shareholders (other than the Directors and chief executives of the Company whose interests or short positions in the shares and underlying shares of the Company as disclosed above) had interests or short positions in the shares and underlying shares of the Company which were recorded in the register required to be kept by the Company under Section 336 of the SFO:

Name of shareholders Capacity

Number of shares

(Long position)

Number of shares

(Short position)Total number

of shares

Approximate percentage of aggregate interests to

total issued share capital

JPMorgan Chase & Co. Interest of controlled corporations (Notes 1 to 4)

140,046,866 762,965 140,809,831 10.93%

AllianceBernstein L.P. Investment manager 95,049,176 – 106,898,242 8.30%Interest of controlled

corporations (Note 5)

11,849,066 –

Capital Research and Management Company

Investment manager (Note 5)

105,231,995 – 105,231,995 8.17%

State Street Corporation Custodian corporation/approved lending agent

(Notes 5 & 6)

82,724,772 – 82,724,772 6.42%

Notes:

1. The shares held by JPMorgan Chase & Co. were held in the following

capacities:

CapacityNumber of shares

(Long position)Number of shares

(Short position)

Beneficial owner 1,130,969 762,965

Investment manager 59,363,917 –

Custodian corporation/ approved lending agent 79,551,980 –

2. Details of the interest in long position of the 140,046,866 shares held by

JPMorgan Chase & Co. were as follows:

Name

Direct (D)/Indirect (I)

interests in the shares

Aggregatelong positionin the shares

Approximate percentage

of aggregate interests to total

issued share capital

JPMorgan Chase Bank, N.A. D 82,201,695 6.38%

JPMorgan Chase Bank, N.A. I 1,130,969 0.09%

J.P. Morgan International Inc. I 1,130,969 0.09%

Name







Bank One International Holdings Corporation

I 1,130,969 0.09%

J.P. Morgan International Finance Limited

I 1,130,969 0.09%

J.P. Morgan Overseas Capital Corporation

I 429,804 0.03%

J.P. Morgan Whitefriars Inc. D 429,804 0.03%

JPMorgan Asset Management Holdings Inc.

I 56,714,202 4.40%

J.P. Morgan Investment Management Inc.

D 7,998,753 0.62%

JPMorgan Asset Management (Asia) Inc.

I 11,772,802 0.91%

JPMorgan Asset Management (Taiwan) Limited

D 750,488 0.06%

JF Asset Management Limited D 10,794,984 0.84%

JPMorgan Asset Management (Japan) Limited

D 107,808 0.01%

95


Name







JPMorgan Asset Management International Limited

I 36,942,647 2.87%

JPMorgan Asset Management Holdings (UK) Limited

I 36,942,647 2.87%

JPMorgan Asset Management (UK) Limited

D 36,942,647 2.87%

J.P. Morgan Capital Holdings Limited

I 701,165 0.05%

J.P. Morgan Chase (UK) Holdings Limited

I 701,165 0.05%

J.P. Morgan Chase International Holdings

I 701,165 0.05%

J.P. Morgan Securities Ltd. D 701,165 0.05%

JF International Management Inc. D 119,522 0.01%

Explanatory Notes:

All the following interests were deemed to be held by the relevant company under the

SFO. JPMorgan Chase & Co. was deemed to be interested in an aggregate of 140,046,866

shares held or deemed to be held by: (I) JPMorgan Chase Bank, N.A. (83,332,664 shares);

and (II) JPMorgan Asset Management Holdings Inc. (56,714,202 shares), all were wholly–

owned subsidiaries of JPMorgan Chase & Co.

(I) JPMorgan Chase Bank, N.A. directly held 82,201,695 shares and was also deemed

to be interested in an aggregate of 1,130,969 shares held by the following indirect

subsidiaries held through J.P. Morgan International Finance Limited (“JPIF”):

(a) 429,804 shares were held by J.P. Morgan Whitefriars Inc., wholly–owned by J.P.

Morgan Overseas Capital Corporation, a wholly–owned subsidiary of JPIF; and

(b) 701,165 shares were held by J.P. Morgan Securities Ltd., 98.95% subsidiary of

J.P. Morgan Chase International Holdings, wholly–owned by J.P. Morgan Chase

(UK) Holdings Limited, wholly–owned by J.P. Morgan Capital Holdings Limited, a

wholly–owned subsidiary of JPIF.

(II) JPMorgan Asset Management Holdings Inc. (“JPAMH”) was deemed to be interested

in an aggregate of 56,714,202 shares held by the following subsidiaries:

(a) 7,998,753 shares were held by J.P. Morgan Investment Management Inc., directly

wholly–owned by JPAMH;

(b) 11,772,802 shares were deemed to be held by JPMorgan Asset Management

(Asia) Inc. (“JPAsia”), directly wholly–owned by JPAMH, through the following

subsidiaries:

(i) 750,488 shares were held by JPMorgan Asset Management (Taiwan) Limited,

wholly–owned by JPAsia;

(ii) 10,794,984 shares were held by JF Asset Management Limited, wholly–owned

by JPAsia;

(iii) 107,808 shares were held by JPMorgan Asset Management (Japan) Limited,

wholly–owned by JPAsia; and

(iv) 119,522 shares were held by JF International Management Inc., wholly–

owned by JPAsia.

(c) 36,942,647 shares were held by JPMorgan Asset Management (UK) Limited,

wholly–owned by JPMorgan Asset Management Holdings (UK) Limited, wholly–

owned by JPMorgan Asset Management International Limited, directly wholly–

owned by JPAMH.

3. 79,551,980 shares of the interests disclosed in Note 2 above represent shares

of the Company in the lending pool.

4. Details of the interest in short position of the 762,965 shares held by JPMorgan

Chase & Co. were as follows:

Name



Aggregateshort positionin the shares




J.P. Morgan International Finance Limited

I 762,965 0.06%

J.P. Morgan Overseas Capital Corporation

I 61,800 0.00%

J.P. Morgan Whitefriars Inc. D 61,800 0.00%

J.P. Morgan Capital Holdings Limited

I 701,165 0.05%

J.P. Morgan Chase (UK) Holdings Limited

I 701,165 0.05%

J.P. Morgan Chase International Holdings

I 701,165 0.05%

J.P. Morgan Securities Ltd. D 701,165 0.05%

Explanatory Notes:

All the following interests were deemed to be held by the relevant company under the

SFO. JPMorgan Chase & Co. was deemed to have a short position in an aggregate of

762,965 shares held by the following indirect subsidiaries:

(a) 61,800 shares held by J.P. Morgan Whitefriars Inc., wholly–owned by J.P. Morgan

Overseas Capital Corporation, wholly–owned by of JPIF, indirect wholly–owned

subsidiary of JPMorgan Chase & Co.; and

(b) 701,165 shares held by J.P. Morgan Securities Ltd., 98.95% subsidiary of J.P. Morgan

Chase International Holdings, wholly–owned by J.P. Morgan Chase (UK) Holdings

Limited, wholly–owned by J.P. Morgan Capital Holdings Limited, wholly–owned by

JPIF, indirect wholly–owned subsidiary of JPMorgan Chase & Co.

5. All interests disclosed herein represent long positions in the shares of the

Company.

6. All interests disclosed herein represent shares of the Company in the lending

pool.

Save as aforesaid and as disclosed in the “Directors’ Interests and Short Positions in Shares, Underlying Shares and Debentures” section of this report, the Company has not been notified by any person who had interest or short position in the shares or underlying shares of the Company as at 30 June 2010 which were required to be notified to the Company pursuant to Part XV of the SFO or which are recorded in the register required to be kept by the Company under Section 336 of the SFO.

PURCHASE, SALE OR REDEMPTION OF THE COMPANY’S SHARES

Neither the Company nor any of its subsidiaries have purchased, sold or redeemed any of the Company’s shares during the year.

PRE–EMPTIVE RIGHTS

There are no provisions for pre–emptive rights under the Company’s Bye–laws.

96


MAJOR CUSTOMERS AND SUPPLIERS

During the year, less than 10% of the Group’s sales were attributable to the five largest customers and less than 20% of the Group’s purchases were attributable to the five largest suppliers.

PUBLIC FLOAT

As at the date of this report and insofar as the Directors are aware, the Company maintained sufficient public float as required under the Listing Rules.

MANAGEMENT CONTRACTS

No contracts concerning the management and administration of the whole or any substantial part of the business of the Company were entered into or existed during the year.

RELATED PARTY TRANSACTIONS AND CONNECTED TRANSACTIONS

Details of the significant related party transactions undertaken in the normal course of business are provided under note 30 to the consolidated financial statements. None of these related party transactions constitutes a connected transaction as defined in the Listing Rules.

AUDIT COMMITTEE

As required under the Listing Rules, the Company has an Audit Committee comprising of five Independent Non–executive Directors. The Audit Committee has reviewed the accounting principles and practices adopted by the Group and has also discussed auditing, internal controls, and financial reporting matters including the review of the consolidated results of the Group for the year ended 30 June 2010.

CORPORATE GOVERNANCE

Particulars of the Company’s corporate governance practices are set out on pages 78 to 84 of this report.

AUDITORS

The consolidated financial statements have been audited by PricewaterhouseCoopers who are due to retire and, being eligible, offer themselves for re–appointment at the 2010 Annual General Meeting.

On behalf of the BoardESPRIT HOLDINGS LIMITED

Heinz Jürgen KROGNER–KORNALIKNon–executive Chairman

Hong Kong, 2 September 2010

97


98

Annual Report 09/1007 // FINANCIAL SECTION

99


Annual Report 09/10

100


07.1 INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF ESPRIT HOLDINGS LIMITED(incorporated in Bermuda with limited liability)

We have audited the consolidated financial statements of Esprit Holdings Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on pages 101 to 140, which comprise the consolidated and company balance sheets as of 30 June 2010, and the consolidated income statement, the consolidated statement of comprehensive income, the consolidated cash flow statement and the consolidated statement of changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Directors’ responsibility for the financial statementsThe directors of the Company are responsible for the preparation and the true and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and the disclosure requirements of the Hong Kong Companies Ordinance. This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and the true and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s responsibilityOur responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance as to whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and true and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the consolidated financial statements give a true and fair view of the financial position of the Company and of the Group as of 30 June 2010, and of the Group’s financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and have been properly prepared in accordance with the disclosure requirements of the Hong Kong Companies Ordinance.

Other mattersThis report, including the opinion, has been prepared for and only for you, as a body, in accordance with Section 90 of the Companies Act 1981 of Bermuda and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report.

PricewaterhouseCoopersCertified Public Accountants

Hong Kong, 2 September 2010

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07.2 Consolidated income statement

For the year ended 30 June

2010 2009Notes HK$ million HK$ million

(restated)

Turnover 5 33,734 34,485Cost of goods sold (15,298) (16,523)

Gross profit 18,436 17,962Staff costs 12 (4,539) (4,051)Occupancy costs (3,936) (3,310)Logistics expenses (1,315) (1,246)Advertising expenses (720) (643)Depreciation (884) (776)

Other operating costs (3,256) (2,207)

Operating profit 6 3,786 5,729Interest income 33 87Finance costs 7 (12) -Share of results of associates 81 161Gain on measuring equity interest in the associated companies held before the business combination 29 1,586 -

Profit before taxation 5,474 5,977Taxation 8 (1,248) (1,232)

Profit attributable to shareholders 9 4,226 4,745

Dividends 10 1,809 3,551

Earnings per share 11 – Basic HK$3.35 HK$3.72 – Diluted HK$3.34 HK$3.71

The notes on pages 107 to 140 form an integral part of these consolidated financial statements.

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07.3 Consolidated statement of comprehensive income


2010 2009HK$ million HK$ million

Profit attributable to shareholders 4,226 4,745

Other comprehensive incomeFair value gain on cash flow hedge 4 1Exchange translation (1,424) (1,244)

Total comprehensive income for the year attributable to shareholders 2,806 3,502


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07.4 Consolidated balance sheet

As at 30 June As at 30 June As at 1 July2010 2009 2008

Notes HK$ million HK$ million HK$ million(restated) (restated)

Non-current assetsIntangible assets 14 7,345 2,061 2,121Property, plant and equipment 15 3,976 4,398 3,570Investment properties 16 12 – –Other investments 7 7 7Investments in associates 17 – 522 583Deposits and prepayments 19 440 559 569Deferred tax assets 24 532 408 510

12,312 7,955 7,360

Current assetsInventories 18 2,455 2,997 3,170Debtors, deposits and prepayments 19 3,043 3,828 4,758Amounts due from associates 17 - 71 83Cash and cash equivalents 20 6,748 4,840 6,521

12,246 11,736 14,532

Current liabilitiesCreditors and accrued charges 22 4,146 3,849 4,571Taxation 918 1,142 989Bank loans – current portion 23 520 – –

5,584 4,991 5,560

Net current assets 6,662 6,745 8,972

Total assets less current liabilities 18,974 14,700 16,332

EquityShare capital 21 129 125 124Reserves 15,943 14,284 15,820

Total equity 16,072 14,409 15,944

Non-current liabilitiesBank loans 23 2,080 – –Deferred tax liabilities 24 822 291 388

2,902 291 388

18,974 14,700 16,332

Approved by the Board of Directors on 2 September 2010.

Ronald VAN DER VIS CHEW FOOK AUNExecutive Director Executive Director


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07.5 Consolidated cash flow statement



(restated)

Cash flows from operating activitiesCash generated from operations 25 6,704 6,458Hong Kong profits tax paid (53) (2)Overseas tax paid (1,239) (1,184)

Net cash inflow from operating activities 5,412 5,272

Cash flows from investing activitiesNet cash outflow for acquisition of remaining interest in the associated companies 29 (3,173) –Net cash outflow for acquisition of a subsidiary 29 (41) –Purchase of property, plant and equipment (1,509) (2,011)Proceeds from disposal of property, plant and equipment 25 16 6Interest received 33 87Dividend received from an associate 245 220

Net cash used in investing activities (4,429) (1,698)

Cash flows from financing activitiesNet proceeds on issue of shares for cash 186 114Repurchase of shares – (204)Dividends paid (1,482) (5,039)Interest paid on bank loans (8) –Proceeds from bank loans 2,600 –

Net cash inflow from/(used in) financing activities 1,296 (5,129)

Net increase/(decrease) in cash and cash equivalents 2,279 (1,555)Cash and cash equivalents at beginning of year 4,840 6,521Effect of change in exchange rates (371) (126)

Cash and cash equivalents at end of year 20 6,748 4,840


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07.6 Consolidated statement of changes in equity

For the year ended 30 June 2010

Share capital

Share premium

Employee share-based

payment reserve

Hedging reserve

Contributed surplus

Translation reserve

Capital reserve

Retained profits Total

HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million

At 1 July 2009 125 2,841 378 (4) 7 627 1 10,434 14,409

Exchange translation – – – – – (1,424) – – (1,424)Fair value gain on cash flow hedge – – – 4 – – – – 4Profit attributable to shareholders – – – – – – – 4,226 4,226

Total comprehensive income – – – 4 – (1,424) – 4,226 2,806

2008/09 final and special dividends paid (Note 10) 3 (3) – – – – – (870) (870)

2009/10 interim dividend paid (Note 10) 1 (1) – – – – – (612) (612)Issues of shares (Note 21) – 186 – – – – – – 186Employee share option benefits – – 153 – – – – – 153Transfer of reserve upon exercise of share options – 50 (50) – – – – – –

At 30 June 2010 129 3,073 481 – 7 (797) 1 13,178 16,072

Representing:Proposed final dividend 863Balance after proposed final dividend 15,209

At 30 June 2010 16,072


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07.6 Consolidated statement of changes in equity


Share capital

Share premium

Employee share-based

payment reserve

Hedging reserve

Contributed surplus

Translation reserve

Capital reserve

Retained profits Total

HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million

At 1 July 2008 124 2,896 322 (5) 7 1,871 1 10,728 15,944

Exchange translation – – – – – (1,244) – – (1,244)Fair value gain on cash flow hedge – – – 1 – – – – 1Profit attributable to shareholders – – – – – – – 4,745 4,745

Total comprehensive income – – – 1 – (1,244) – 4,745 3,502

2007/08 final and special dividends paid – – – – – – – (4,042) (4,042)2008/09 interim dividend paid (Note 10) – – – – – – – (997) (997)Issues of shares (Note 21) 1 113 – – – – – – 114Repurchase of shares – (204) – – – – – – (204)Employee share option benefits – – 92 – – – – – 92Transfer of reserve upon exercise of share options – 36 (36) – – – – – –

At 30 June 2009 125 2,841 378 (4) 7 627 1 10,434 14,409


At 30 June 2009 14,409

The contributed surplus of the Group represents the difference between the nominal value of the shares of the subsidiaries acquired pursuant to the Group reorganisation in 1993 and the nominal value of the Company’s shares issued in exchange thereof.

The capital reserve of the Group represents a non-distributable reserve set aside by a subsidiary according to relevant statutory requirements.


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07.7 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS


1 General information

Esprit Holdings Limited (the “Company”) and its subsidiaries (together the “Group”) are principally engaged in wholesale and retail distribution and licensing of quality fashion and lifestyle products designed under its own internationally-known Esprit brand name.

The Company is a limited liability company incorporated in Bermuda. The registered address is Clarendon House, Church Street, Hamilton HM 11, Bermuda. The Company has its primary listing on The Stock Exchange of Hong Kong Limited (code: 00330) and also has its shares traded on the International Bulletin Board of the London Stock Exchange.

The Company’s consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), issued by the International Accounting Standards Board (“IASB”).

These consolidated financial statements are presented in millions of units of Hong Kong Dollars, unless otherwise stated.

These consolidated financial statements have been approved for issue by the Board of Directors on 2 September 2010.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of these consolidated financial statements are set out below.

(a) Basis of preparation

These consolidated financial statements of the Group have been prepared in accordance with IFRS.

In the current year, the Group has adopted the IFRS 3 (Revised) “Business Combinations”, IFRS 8 “Operating Segments”, International Accounting Standard (“IAS”) 1 (Revised) “Presentation of Financial Statements” and IAS 27 (Revised) “Consolidated and Separate Financial Statements”.

IFRS 3 (Revised), “Business Combinations”. The revised standard continues to apply the acquisition method to business combinations, with some significant changes. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets. All acquisition-related costs should be expensed. The Group has applied IFRS 3 (Revised) prospectively to all business combinations from 1 July 2009. The revised standard was applied to the acquisition of the controlling interest in subsidiaries. This acquisition has occurred in stages. The determination of goodwill includes the previously held equity interest to be adjusted to fair value with any gain or loss recorded in the income statement.

IFRS 8, “Operating Segments”, replaces IAS 14, “Segment Reporting”, and aligns segment reporting with the requirements of the US standard SFAS 131, “Disclosures about Segments of an Enterprise and Related Information”. The new standard requires a “management approach”, under which segment information is presented on the same basis as that used for internal reporting purposes. This has resulted in an increase in the number of reportable segments presented. In addition, the segments are reported in a manner that is more consistent with the internal reporting provided to the chief operating decision-maker. Comparatives for 2009 have been restated.

IAS 1 (Revised), “Presentation of Financial Statements”. The revised standard prohibits the presentation of items of income and expenses (that is “non-owner changes in equity”) in the statement of changes in equity, requiring “non-owner changes in equity” to be presented separately from owner changes in equity. All “non-owner changes in equity” are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the consolidated income statement and statement of comprehensive income). The Group has elected to present two statements: a consolidated income statement and a consolidated statement of comprehensive income. The consolidated financial statements of the Group have been prepared under the revised disclosure requirements.

IAS 27 (Revised), “Consolidated and Separate Financial Statements”. The revised standard requires the effects of all transactions with minority interest to be recorded in equity if there is no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the accounting when control is lost. Any remaining interest in the equity is re-measured to fair value, and a gain or loss is recognised in profit or loss. The Group has applied IAS 27 (Revised) prospectively to transactions with minority interest from 1 July 2009.

The other standards, amendments and interpretations effective for the Group’s accounting periods beginning on or after 1 July 2009 do not have any significant impact on the Group’s consolidated financial statements.

In the current year, the Group has early adopted IFRS 8 (Amendment) “Operating Segments” and IAS 17 (Amendment) “Operating Leases”.

IFRS 8 (Amendment) “Operating Segments”. The amendment to the standard clarifies that an entity is required to disclose a measure of segment assets only if that measure is regularly reported to the chief operating decision-maker. Accordingly, segment assets have not been disclosed in the consolidated financial statements as it is not reported to the chief operating decision-maker.

IAS 17 (Amendment) “Operating Leases”. The amendment to the standard has resulted in a change in accounting policy for the classification of leasehold land of the Group. Previously, leasehold land was classified as an operating lease and stated at cost less accumulated amortisation. In accordance with the amendment, leasehold land is classified as a finance lease and stated at cost less accumulated depreciation if substantially all risks and rewards of the leasehold land have been transferred to the Group. As the present value of the minimum lease payments (that is the transaction price) of the land held by the Group amounted to substantially all of the fair value of the land as if it were freehold, the leasehold land of the Group has been classified as a finance lease. The amendment has been applied retrospectively to unexpired leases at the date of adoption of the amendment on the basis of information existing at the inception of the leases.

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2 Summary of significant accounting policies (continued)

(a) Basis of preparation (continued)

The effect of the adoption of IAS 17 (Amendment) “Operating Leases” on the consolidated balance sheet is as follows:

As at 30 June

As at 30 June

As at 1 July

2010 2009 2008HK$

millionHK$

millionHK$

million

Increase/(Decrease) in assets Property, plant and equipment 165 170 175 Prepaid lease payments (160) (165) (170) Debtors, deposits and prepayments (5) (5) (5)

– – –

The depreciation of leasehold land in Hong Kong was classified as amortisation of prepaid lease payments and included in other operating costs in prior year and has been reclassified to depreciation for comparison purposes.

The Group did not early adopt the following IAS, IFRS and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations that have been issued up to the date of approval of these consolidated financial statements.

Effective for accounting periods

beginning on or after

IAS 24 (Amendment)

Related Party Disclosures 1 January 2011

IAS 32 (Amendment)

Financial Instruments – Classification of Rights Issues

1 February 2010

IFRS 1 (Amendment)

First-time Adoption of IFRS – Oil and Gas Assets and Determining Whether an Arrangement Contains a Lease

1 January 2010

IFRS 1 (Amendment)

Limited Exemption from Comparative IFRS 7 Disclosure

1 July 2010

IFRS 2 (Amendment)

Group Cash-settled Share-based Payment Transactions

1 January 2010

IFRS 9 Financial Instruments 1 January 2013IFRIC 14 (Amendment)

Prepayment of a Minimum Funding

1 January 2011

IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments

1 July 2010

Various IASs and IFRSs

Improvements to IFRS 5 and IFRSs 2009

1 January 2010

Improvements to IFRSs 2010 1 January 2011

When preparing the consolidated financial statements, management has adopted certain accounting, valuation and consolidation methods to comply with IFRS. The preparation of these consolidated financial statements also requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the accounting policies. The areas involving a higher degree of judgement and complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in note 4 “Critical accounting estimates and judgements”.

These consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of certain financial instruments and investment properties to fair value. The policies set out below have been consistently applied to all the years presented.

(b) Consolidation

(i) SubsidiariesSubsidiaries are all entities over which the Group has control. Control is the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

(ii) Transactions with non-controlling interestThe Group treats transactions with non-controlling interest as transactions with equity holders of the Company. For purchases from minority interest, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to minority interest are also recorded in equity.

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(b) Consolidation (continued)

(iii) AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired and contingent liabilities assumed is recorded as goodwill. Goodwill on acquisitions of associates is included in investments in associates.

The Group’s share of its associates’ post-acquisition profits or losses is recognised in the income statement, and its share of post-acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any long-term interests that form part of the investor’s net investment in the associates, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.

(c) Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the board of executive directors that makes strategic decisions.

(d) Foreign currency translation

(i) Functional and presentation currencyItems included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in the currency of Hong Kong dollars, which is the Company’s functional and presentation currency.

(ii) Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Group companiesThe results and financial position of all the group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

(a) assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

(b) income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

(c) all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold, such exchange differences are recognised in the income statement as part of the gain or loss on sale. When an inter-company loan balance which forms part of the net investment in a foreign entity is repaid, such exchange differences are recognised in the income statement.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.

(e) Property, plant and equipment

Property, plant and equipment, other than freehold land, are stated at historical cost less accumulated depreciation and accumulated impairment losses (if any). Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Freehold land is not depreciated. Leasehold land and leasehold improvements are depreciated over the initial lease terms. Fixtures are depreciated over the shorter of five years and their estimated useful lives on a straight-line basis. Depreciation on other assets is calculated using the straight-line method to write down their cost to their residual values over their estimated useful lives. The principal annual rates are as follows:

Buildings 31/3 - 5%Plant and machinery 30%Furniture and office equipment 10 - 331/3%Motor vehicles 25 - 30%

No depreciation is provided for construction in progress until it is completed and ready for use.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount (Note 2(h)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

110



(f) Investment properties

Investment properties are interests in land and buildings which are held for long term and/or for capital appreciation. Such properties are carried in the balance sheet at their fair value. Changes in fair values of investment properties are recognised directly in the income statement in the period in which they arise.

(g) Intangible assets

(i) GoodwillGoodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates and is tested for impairment as part of the cost of investments in associates. Goodwill included in intangible assets is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

(ii) TrademarksTrademarks are shown at historical cost. Trademarks with indefinite useful lives are carried at cost less accumulated impairment losses, if any.

Trademarks with indefinite useful lives are not amortised but are tested for impairment (Note 2(h)).

(iii) Customer relationshipsCustomer relationships acquired in a business combination are recognised at fair value at the acquisition date. The customer relationships have an expected life of 10 years and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method over the expected life of the customer relationships.

(h) Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortisation and are tested for impairment annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised immediately for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).

An impairment loss recognised in prior periods for an asset other than goodwill is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the assets’ carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised.

(i) Inventories

Inventories are stated at the lower of cost and net realisable value with cost being determined on a weighted average basis. Cost comprises the direct costs of merchandise and charges that have been incurred in bringing inventories to their current location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses.

(j) Receivables

Receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all the amounts due according to the original terms of receivables. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flow, discounted at the effective interest rate. The carrying amount of the assets is reduced through the use of an allowance account, and the amount of provision is recognised in the income statement. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited to the income statement.

Receivables denominated in foreign currencies are stated at the year-end exchange rates. The resulting gains or losses are recorded in the consolidated income statement, with the exception of the gains or losses resulting from the translation of inter-company long-term loans, which are considered to form part of the net investment in the related subsidiaries because settlement is neither planned nor likely to occur in the foreseeable future. The impacts of translation of these items have been reflected in equity.

(k) Payables

Payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

Payables denominated in foreign currencies are stated at the year-end exchange rates. The resulting gains or losses are recorded in the consolidated income statement, with the exception of the gains or losses resulting from the translation of inter-company long-term loans. The impacts of translation of these items have been reflected in equity.

(l) Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held at call with banks and bank overdrafts. Bank overdrafts are shown under current liabilities on the balance sheet.

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(m) Deferred tax

Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, if the deferred tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not accounted for. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled.

Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Deferred tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

(n) Employee benefits

(i) Pension obligationsThe Group principally participates in defined contribution plans and pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due and if applicable, are reduced by contributions forfeited by those employees who leave the scheme or the plan prior to vesting fully in the contributions.

(ii) Share optionsThe Group operates an equity-settled, share-based compensation plan to grant share options to directors, employees and consultants of the Group in exchange for their services provided to the Group. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of the options granted is recognised as an expense over the relevant period of the service (the vesting period of the options). The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted, excluding the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. The Group recognises the impact of the revision of original estimates, if any, in the income statement, and a corresponding adjustment to equity over the remaining vesting period.

When the options are exercised, the proceeds received net of any directly attributable transactions cost are credited to share capital and share premium.

(iii) Employee leave entitlementsEmployee entitlements to annual leave are recognised when they accrue to employees. A provision is made for the estimated liability for annual leave as a result of services rendered by employees up to the balance sheet date.

(iv) Bonus plansThe Group recognises a liability and an expense for bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

(o) Provisions

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. The increase in the provision due to passage of time is recognised as interest expense.

(p) Revenue recognition

Revenue comprises the fair value for the sale of goods and services, net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. Revenue is recognised as follows:

(i) Sales of goods – wholesaleSales of goods are recognised on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to the customer and title has been passed.

(ii) Sales of goods – retailSales of goods are recognised on sale of a product to the customer. Retail sales are mainly in cash or by credit card.

(iii) Licensing incomeLicensing income is recognised on an accrual basis in accordance with the substance of the relevant agreements.

(iv) Interest incomeInterest income is recognised on a time proportion basis using the effective interest method.

(q) Accounting for derivative financial instruments

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Changes in the fair value of derivative instruments that do not qualify for hedge accounting are recognised immediately in the income statement.

The method of recognising the resulting gain or loss where the derivative is designated as a hedging instrument depends on the nature of the item being hedged. The Group can designate certain derivatives as either: (i) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (ii) hedges of highly probable forecast transactions (cash flow hedges).

112



(q) Accounting for derivative financial instruments (continued)

The Group is required to document at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group is also required to document its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

(i) Fair value hedgeChanges in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

(ii) Cash flow hedgeThe effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are recognised in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are recycled in the income statement in the periods when the hedged item will affect profit or loss (for instance when the forecast sale that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset or liability.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

(r) Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessors) are charged to the income statement on a straight-line basis over the period of the lease, except where an alternative basis is more representative of the pattern of benefits to be derived from the leased assets. Contingent rentals are charged to the income statement in the accounting period in which they are incurred. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

The Group leases certain property, plant and equipment. Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

(s) Dividend distributions

Dividend distributions to the Company’s shareholders are recognised as a liability in the Group’s and the Company’s financial statements in the period in which the dividends are approved by the Company’s shareholders.

3 Financial risk management

(a) Financial risk factors

The Group’s activities expose it to a variety of financial risks, mainly foreign exchange risk and credit risk. The Group’s overall risk management programme focuses on minimising the potential adverse effects of these risks on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk exposures.

(i) Foreign exchange riskThe Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the Euro. Foreign exchange risk primarily arises from future commercial transactions and recognised assets and liabilities.

To minimise the Group’s foreign exchange exposure on costs for merchandise produced for Europe in Asia, suppliers in Asia are asked to quote and settle in Euro. In addition, to manage the foreign exchange risk arising from future commercial transactions, the Group enters into foreign currency forward contracts to reduce foreign exchange risk.

The Group’s profit attributable to shareholders and shareholders’ funds would decrease (2009: decrease) by approximately HK$4 million (2009: HK$0.2 million) in response to a 1% strengthening in Euro vs US Dollars in relation to monetary items and derivative financial instruments in existence at the balance sheet date.

(ii) Credit riskThe Group’s credit risk is primarily attributable to trade and other debtors and deposits with banks.

There is no concentration of credit risk with respect to trade debtors as the Group has a large number of internationally dispersed customers. It has policies in place to ensure that wholesale sales of products are made to customers with an appropriate credit history. Sales to retail customers are made in cash, bank transfer or by credit card. The Group grants credit for a period which is usually 30 to 60 days to certain wholesale and franchise customers. The Group does not hold any collateral over the trade debtors. The Group manages the credit risk mainly by purchasing credit guarantee insurance and arranging the trade debtors to be covered by letters of credit or bank guarantees. Individual risk limits are set based on internal ratings in accordance with limits set by management. The utilisation of credit limits is regularly monitored.

During the year, the Group has enhanced the group credit control policy to promote good practice in credit control procedures across the Group and protect and limit the Group’s overall exposure to credit risks. This policy provides the general principle to guide the credit management process by setting forth the general acceptable practices for limiting credit exposures and in particular, the establishment of the regional and country credit limit for control of credit.

The credit risk on deposits with banks is limited because the Group mainly places the deposits in banks with high credit rating and management does not expect any losses from non-performance by banks.

(iii) Liquidity riskThe Group manages liquidity risk by continuously monitoring forecast and actual cash flows, by keeping sufficient cash and cash equivalents and by maintaining adequate banking facilities.

113


3 Financial risk management (continued)

(a) Financial risk factors (continued)

(iii) Liquidity risk (continued)The table below analyses the Group’s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than 1 year

Between 1 and

2 years

Between 2 and

5 yearsOver

5 yearsHK$

millionHK$

millionHK$

millionHK$

million

At 30 June 2010Creditors and accrued charges 4,146 – – –Bank loans 542 538 1,583 –

4,688 538 1,583 –

At 30 June 2009Creditors and accrued charges 3,849 – – –Bank loans – – – –

3,849 – – –

(iv) Interest rate riskThe Group’s interest rate risk arises primarily from bank loans. Bank loans at variable rates expose the Group to cash flow interest rate risk. The Group earns interest income on cash deposits.

The Group’s profit attributable to shareholders would decrease by approximately HK$10 million in response to a 100 basis-points increase in market interest rates from the rates applicable at 30 June 2010, with all other variables held constant.

(b) Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide` returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Group’s capital structure is being reviewed annually to ensure these objectives are to be achieved. In order to maintain or adjust the capital structure, the Group will consider the macroeconomic conditions, prevailing interest rates and adequacy of cash flows generating from operations and may adjust the amounts of dividends paid to shareholders, return capital to shareholders or issue new shares.

The Group monitors capital by maintaining a net cash position throughout the year.

4 Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

Critical accounting estimates and assumptions

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

(a) Useful life and impairment of trademarks

(i) Indefinite useful lifeThe Group’s acquired Esprit trademarks are classified as an indefinite-lived intangible asset in accordance with IAS 38 “Intangible Assets”. This conclusion is supported by the fact that Esprit trademark legal rights are capable of being renewed indefinitely at insignificant cost and therefore are perpetual in duration, relate to a well known and long established fashion brand since 1968, and based on future financial performance of the Group, they are expected to generate positive cash flows indefinitely. This view is supported by an independent professional appraiser, who was appointed by the Group to perform an assessment of the useful life of Esprit trademarks in accordance with the requirements set out in IAS 38 as at 30 June 2004. Having considered the factors specific to the Group, the appraiser opined that Esprit trademarks should be regarded as an intangible asset with an indefinite useful life. Under IAS 38, the Group re-evaluates the useful life of Esprit trademarks each year to determine whether events and circumstances continue to support the view of indefinite useful life for this asset.

(ii) ImpairmentIn accordance with IAS 36 “Impairment of Assets”, the Group completed its annual impairment test for Esprit trademarks by comparing their recoverable amount to their carrying amount as at 30 June 2010. The Group has conducted a valuation of the Esprit trademarks as one corporate asset based on a fair value less costs to sell calculation. The resulting value of the Esprit trademarks as at 30 June 2010 was significantly higher than their carrying amount. This valuation uses cash flow projections based on financial estimates covering a three-year period, expected royalty rates deriving from the Esprit trademarks in the range of 3% to 6% and a discount rate of 14%. The cash flows beyond the three-year period are extrapolated using a steady 3% growth rate. This growth rate does not exceed the long-term average growth rate for apparel markets in which the Group operates. Management has considered the above assumptions and valuation and has also taken into account the business expansion plan going forward, the current wholesale order books and the strategic retail expansion worldwide and believes that there is no impairment in the Esprit trademarks. Management believes that any reasonably foreseeable change in any of the above key assumptions would not cause the aggregate carrying amount of trademarks to exceed the aggregate recoverable amount.

(b) Impairment of property, plant and equipment

In accordance with IAS 36 “Impairment of Assets”, the Group assesses annually whether property, plant and equipment have any indication of impairment. The Group estimates the recoverable amount of the asset if any such indication exists. The recoverable amount is the higher of an asset’s fair value less cost to sell and value in use. The value in use calculation involves estimating the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal and applying the appropriate discount rate to those future cash flows. The estimation of future cash flows and selection of discount rate require the use of judgements and estimates. Management believes that any reasonably foreseeable change in any of the above key elements in the value in use calculation would not result in material additional impairment charges.

114


4 Critical accounting estimates and judgements (continued)

(c) Net realisable value of inventories

In accordance with IAS 2 “Inventories”, the Group estimates annually the net realisable value of inventories. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. These estimates are based on the current market condition and the historical experience of selling products of similar nature. It could change significantly as a result of changes in customer taste and competitor actions in response to changes in market conditions. Management reassesses these estimates at each balance sheet date.

(d) Income taxes

The Group is subject to income taxes in numerous jurisdictions. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises, as current liabilities, liabilities for anticipated tax audit issues based on estimates of whether additional taxes will eventually be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.

5 Turnover and segment information

The Group is principally engaged in wholesale and retail distribution and licensing of quality fashion and lifestyle products designed under its own internationally-known Esprit brand name.


Turnover Sales of goods 33,508 34,257 Licensing and other income 226 228

33,734 34,485

The chief operating decision-makers have been identified as the executive directors (“Executive Directors”) of the Group.

Management has determined the operating segments based on the reports reviewed by the Executive Directors that are used to assess performance and allocate resources.

The Executive Directors consider the business from an operations nature perspective, including wholesale and retail distribution and licensing of quality fashion and life-style products designed under its own internationally-known Esprit brand name.

Inter-segment transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.


Wholesale Retail Licensing

Corporate services,

sourcing and others Group

HK$ million HK$ million HK$ million HK$ million HK$ million

Total revenue 15,631 17,910 181 25,174 58,896Inter-segment revenue - (33) – (25,129) (25,162)

Revenue from external customers 15,631 17,877 181 45 33,734

Segment results 3,967 681 159 (1,021) 3,786

Interest income 33Finance costs (12)Share of results of associates 81Gain on measuring equity interest in the associated companies held before the business combination 1,586

Profit before taxation 5,474

Capital expenditure 43 797 3 666 1,509Depreciation 69 719 4 92 884Impairment of property, plant and equipment 1 654 – – 655Provision for store closure - 441 – – 441

115


5 Turnover and segment information (continued)

For the year ended 30 June 2009 (restated)

Wholesale Retail Licensing

Corporate services,

sourcing and others Group


Total revenue 17,906 16,376 175 27,823 62,280Inter-segment revenue - (25) – (27,770) (27,795)

Revenue from external customers 17,906 16,351 175 53 34,485

Segment results 4,887 1,789 126 (1,073) 5,729

Interest income 87Share of results of associates 161

Profit before taxation 5,977

Capital expenditure 64 1,298 1 648 2,011Depreciation 65 616 4 91 776Impairment of property, plant and equipment - 38 – – 38

Turnover from external customers is attributed to the following countries based on the location in which the sales originated:


Europe Germany (Note 1) 14,773 15,454 Benelux 5,000 5,308 France 2,841 3,133 Austria 1,475 1,506 Scandinavia 1,464 1,605 Switzerland 1,409 1,254 United Kingdom 411 403 Ireland 32 61 Italy 287 361 Spain 295 261 Portugal 27 17 Others 7 –

28,021 29,363

Asia Pacific Hong Kong 688 738 Macau (Note 2) 1,295 1,724 Taiwan 261 265 Singapore 410 399 Malaysia 211 210 China 793 – Australia and New Zealand 976 819

4,634 4,155

North America Canada 553 489 United States 526 478

1,079 967

33,734 34,485

Note 1: Germany sales includes wholesale sales to other European countries mainly Russia, Poland, Greece, Czech Republic and Croatia

Note 2: Macau sales includes wholesale sales to other countries mainly China, Middle East, Chile, Thailand and India

The total of non-current assets other than deferred tax assets, financial instruments and intangible assets is located in the following countries:


Hong Kong 332 355Germany 1,926 1,662Other countries 1,730 2,903

3,988 4,920

During the year, the turnover from the Group’s largest customer amounted to less than 10 percent of the Group’s total turnover (2009: less than 10 percent).

116


6 Operating profit


(restated)

Operating profit is arrived at after charging and (crediting) the following:

Auditors’ remuneration 14 13Depreciation 884 776Impairment of property, plant and equipment (Note) 655 38Provision for store closure (Note) 441 -Loss on disposal of property, plant and equipment 32 32Occupancy costs

Operating lease charge (including variable rental of HK$283 million (2009: HK$162 million)) 3,018 2,497

Other occupancy costs 918 813Net exchange losses on foreign currency forward contracts 34 40Other net exchange gains (148) (38)Net charge for provision for obsolete inventories 18 30Provision for impairment of trade debtors 283 181

Note: During the year, the management has decided to close a number of stores in various countries. Impairment of property, plant and equipment of HK$352 million (2009: nil) and provision for costs in connection with the store closure of HK$441 million (2009: nil) have been recognised.

7 Finance costs


Interest on bank loans wholly repayable within five years 8 –Imputed interest on financial assets and financial liabilities 4 –

12 –

8 Taxation


Current tax Hong Kong profits tax Provision for current year 1 1 Underprovision for prior years 54 – Overseas taxation Provision for current year 1,270 1,346 Overprovision for prior years (336) (31)

989 1,316Deferred tax (Note 24) Current year net charge 237 18

Effect of changes in tax rates 22 (102)

Taxation 1,248 1,232

Hong Kong profits tax is calculated at 16.5% (2009: 16.5%) on the estimated assessable profit for the year, net of tax losses carried forward, if applicable.

Overseas (outside of Hong Kong) taxation has been calculated on the estimated assessable profit for the year at the rates of taxation prevailing in the countries in which the Group companies operate, net of tax losses carried forward, if applicable.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the weighted average tax rate applicable to profits of the Group’s subsidiaries. The weighted average applicable tax rate was 22.8% (2009: 20.6%).


Profit before taxation 5,474 5,977

Tax calculated at applicable tax rate 1,146 1,365Expenses not deductible for tax purposes 52 43Non-taxable income (5) (14)Utilisation of carried forward tax losses (56) (36)Tax effect of tax losses not recognised 18 39Tax effect of share of results of associates (19) (32)Overprovision for prior years (282) (31)Tax effect on deferred tax balances due to changes in income tax rates 22 (102)Deferred tax on undistributed earnings 372 –

Taxation 1,248 1,232

9 Profit attributable to shareholders

The profit attributable to shareholders of the Company is dealt with in the financial statements of the Company to the extent of HK$2,135 million (2009: HK$1,947 million (Note 31)).

10 Dividends


Paid interim dividend of HK$0.74 (2009: HK$0.80) per share 946* 997Proposed – final dividend of

HK$0.67 (2009: HK$0.72) per share 863 897**

– special dividend: nil (2009:HK$1.33 per share) – 1,657**

1,809 3,551

The amount of the 2010 proposed final dividend is based on 1,288,227,960 shares (2009: 1,246,031,934 shares as at 26 August 2009) in issue as at 2 September 2010. The proposed final dividend for 2010 will not be reflected as dividend payable in the balance sheet until it is approved at the forthcoming annual general meeting by the shareholders of the Company. The Board of Directors has recommended to provide the shareholders with an option to receive the final dividend in form of new fully paid shares in lieu of cash.

117


10 Dividends (continued)

* The actual interim dividend paid in cash for the year ended 30 June 2010 was HK$612 million. Part of the interim dividend for the year ended 30 June 2010 was paid in form of new fully paid shares out of the share premium during the year. For the purpose of calculating the number of scrip shares allotted in respect of the interim dividend, the market value of the scrip shares is HK$55.97, which is the average closing price of the Company’s share as quoted on The Stock Exchange of Hong Kong Limited for the five consecutive trading days immediately preceding 8 March 2010.

** The actual final dividend paid in cash for the year ended 30 June 2009 was HK$870 million. The amount of the actual final dividend paid for the year ended 30 June 2009 had taken into account the additional shares issued during the period from 27 August 2009 to 10 December 2009, the date of closure of the register of members, and part of the final dividend was paid in form of new fully paid shares out of the share premium during the year. The special dividend for the year ended 30 June 2009 was paid in form of new fully paid shares out of the share premium during the year. For the purpose of calculating the number of scrip shares allotted in respect of the final dividend and special dividend, the market value of the scrip shares is HK$53.84, which is the average closing price of the Company’s share as quoted on The Stock Exchange of Hong Kong Limited for the five consecutive trading days immediately preceding 30 November 2009.

11 Earnings per share

Basic

Basic earnings per share is calculated by dividing the profit attributable to shareholders by the weighted average number of ordinary shares in issue during the year after adjusting the outstanding number of ordinary shares deemed to be issued as at the beginning of the year as a result of the scrip dividend (note).


(restated)


Weighted average number of ordinary shares in issue (million) 1,263 1,244Adjustments for scrip shares (million) (note) – 31

1,263 1,275

Basic earnings per share (HK dollars per share) 3.35 3.72

Diluted

Diluted earnings per share is calculated based on the profit attributable to shareholders, and the weighted average number of shares in issue during the year and the number of ordinary shares deemed to be issued as at the beginning of the year as a result of the scrip dividend (note) after adjusting for the number of dilutive potential ordinary shares granted under the Company’s share option scheme.


(restated)


Weighted average number of ordinary shares in issue (million) 1,263 1,244Adjustments for scrip shares (million) (note) – 31Adjustments for share options (million) 2 2

Weighted average number of ordinary shares for diluted earnings per share (million) 1,265 1,277

Diluted earnings per share (HK dollars per share) 3.34 3.71

Note: On 10 December 2009, the shareholders approved a special dividend of HK$1.33 per share for the year ended 30 June 2009 by way of new fully paid shares (“scrip shares”). Approximately 31 million scrip shares were issued on 15 January 2010. The basic and diluted earnings per share for the year ended 30 June 2009 have been restated as the scrip shares are treated as if the issue had occurred as at 1 July 2008.

12 Staff costs (including directors’ emoluments)


Salaries and wages 3,426 3,080Social security costs and other staff costs 866 803Pensions costs of defined contribution plans 94 76Employee share option benefits 153 92

4,539 4,051

Defined contribution retirement schemes

The Group principally participates in defined contribution plans. In Hong Kong, the Group participates in the Mandatory Provident Fund Scheme operated by HSBC Provident Fund Trustee (Hong Kong) Limited. Contribution at a fixed rate of 5 percent of the employee’s relevant income, subject to a cap of monthly relevant income of HK$20,000 per employee, are made to the scheme and are vested immediately. The Group also operates several defined contribution retirement plans for its overseas subsidiaries and pays contributions to publicly or privately administered pension plans on a mandatory, contractual or voluntary basis. Contributions to the schemes by the Group and employees are calculated at fixed percentages of employees’ basic salaries or at agreed fixed amounts.

Under the defined contribution scheme in some countries, where employees leave the scheme prior to the full vesting of the employer’s contributions, the amount of forfeited contributions is used to reduce the contributions payable by the Group. During the year, the Group did not have any contributions forfeited in accordance with the schemes’ rules (2009: nil) which have been applied towards the contributions payable by the Group.

118


13 Directors’ and senior management’s emoluments

(a) Directors’ emoluments

Name of Director Fees5

Basic salaries,

allowance and benefits

in kind BonusesShare option

benefits6

Provident fund contributions/

retirement benefit costs

Compensation for loss of office as a

director7

2010 Total

emoluments

2009 Total

emoluments

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

HEINZ JÜRGEN KROGNER-KORNALIK1

– 18,136(EUR1,679,572)

97,182 (EUR9,000,001)

9,239 (EUR855,579)

73 (EUR6,784)

– 124,630 (EUR11,541,936)

68,257 (EUR6,404,251)

RONALD VAN DER VIS – 16,713 (EUR1,547,791)

– 46,106 (EUR4,269,881)

43 (EUR4,014)

– 62,862 (EUR5,821,686)

1,570 (EUR147,320)

CHEW FOOK AUN – 8,043 1,250 7,578 12 – 16,883 5,669JÜRGEN ALFRED RUDOLF FRIEDRICH2,4

573 – – – – – 573 425

PAUL CHENG MING FUN3,4 805 – – – – – 805 613ALEXANDER REID HAMILTON3,4

735 – – – – – 735 613

DR HANS-JOACHIM KÖRBER3,4

665 – – – – – 665 538

RAYMOND OR CHING FAI3,4

730 – – – – – 730 613

FRANCESCO TRAPANI3 658 – – – – – 658 268THOMAS JOHANNES GROTE

– – – (17,845) (EUR1,652,590)

– – (17,845) (EUR1,652,590)

32,851 (EUR3,082,348)

JEROME SQUIRE GRIFFITH

– – – – – – – 4,405 (USD567,361)

JOHN POON CHO MING – – – – – – – 21,301

Total for the year 2010 4,166 42,892 98,432 45,078 128 – 190,696

Total for the year 2009 3,070 31,679 61,725 19,121 83 21,445 137,123

1 Mr. KROGNER-KORNALIK was re-designated as non-executive director on 30 June 20102 Non-executive directors3 Independent non-executive directors4 Members of the Audit Committee5 The amount includes directors’ fees of HK$3.6 million (2009: HK$2.6 million) paid to independent non-executive directors6 The share option benefits of Mr. GROTE represent reversal of share option benefits recognised in prior years as a result of forfeiture of the

unvested share options during the year7 The amount includes payment for non-competition agreement

119


13 Directors’ and senior management’s emoluments (continued)

(b) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group for the year included three (2009: three) Directors whose emoluments are reflected in the analysis presented above. The emoluments receivable by the remaining two (2009: two) during the year are listed below:

2010 2009HK$’000 HK$’000

Salaries, housing and other allowances and benefits in kind 11,864 10,717Bonuses 11,357 7,940Share option benefits 15,384 22,244Pensions costs of defined contribution plans 18 10

38,623 40,911

Number of Individuals

Emoluments Band 2010 2009

HK$17,500,001 – HK$ 18,000,000 – 1HK$19,000,001 – HK$ 19,500,000 2 –HK$23,000,001 – HK$ 23,500,000 – 1

14 Intangible assets

Trademarks GoodwillCustomer

relationships TotalHK$ million HK$ million HK$ million HK$ million

CostAt 1 July 2008 2,070 51 – 2,121Exchange translation (56) (4) – (60)

At 1 July 2009 2,014 47 – 2,061Acquisition of remaining interest in the associated companies (Note 29) – 4,719 589 5,308

Acquisition of a subsidiary (Note 29) – 42 – 42Amortisation charge – – (23) (23)Exchange translation (39) (4) – (43)

At 30 June 2010 1,975 4,804 566 7,345

The trademarks are considered to have an indefinite useful life and were tested for impairment at 30 June 2010, as described in note 4(a).

For the goodwill arising from the acquisitions during the year, the Group has assessed there is no indication of impairment after the consideration of both external and internal sources of information. The Group will perform impairment assessment for goodwill for the newly acquired businesses annually.

120


15 Property, plant and equipment

Freeholdland outside

Hong Kong

Leaseholdland in

Hong Kong Buildings

Leaseholdimprovements

and fixturesPlant and

machinery

Furnitureand office

equipmentMotor

vehiclesConstruction

in progress Total

HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK $ million HK$ million

CostAt 1 July 2009, as previously reported 23 – 220 4,877 12 2,427 63 586 8,208Effect of adoption of IAS 17 (Amendment) (Note 2(a)) – 196 – – – – – – 196

At 1 July 2009, as restated 23 196 220 4,877 12 2,427 63 586 8,404Exchange translation – – (4) (428) (1) (237) (8) (146) (824)Additions – – – 595 – 302 9 603 1,509Transfer – – – 17 – 3 – (20) –Acquisition of remaining interest in the associated companies (Note 29) – – – 206 – 58 1 – 265Acquisition of a subsidiary (Note 29) – – – – – 1 1 – 2Disposals – – – (297) (1) (137) (9) (9) (453)

At 30 June 2010 23 196 216 4,970 10 2,417 57 1,014 8,903

Depreciation and impairmentAt 1 July 2009, as previously reported – – 92 2,116 10 1,731 31 – 3,980Effect of adoption of IAS 17 (Amendment) (Note 2(a)) – 26 – – – – – – 26

At 1 July 2009, as restated – 26 92 2,116 10 1,731 31 – 4,006Exchange translation – – (2) (202) (1) (182) (5) – (392)Charge for the year – 5 9 559 1 297 13 – 884Disposals – – – (267) (1) (130) (7) – (405)Impairment charge – – – 548 1 106 – – 655Acquisition of remaining interest in the associated companies (Note 29) – – – 132 – 46 1 – 179

At 30 June 2010 – 31 99 2,886 10 1,868 33 – 4,927

Net book valueAt 30 June 2010 23 165 117 2,084 – 549 24 1,014 3,976

121


15 Property, plant and equipment (continued)

Freeholdland outside

Hong Kong

Leaseholdland in

Hong Kong Buildings

Leaseholdimprovements

and fixturesPlant and

machinery

Furnitureand office

equipmentMotor

vehiclesConstruction

in progress Total

HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK $ million HK$ million

CostAt 1 July 2008, as previously reported 25 – 228 4,569 14 2,350 73 – 7,259Effect of adoption of IAS 17 (Amendment) (Note 2(a)) – 196 – – – – – – 196

At 1 July 2008, as restated 25 196 228 4,569 14 2,350 73 – 7,455Exchange translation (2) – (8) (498) (2) (224) (8) – (742)Additions – – – 1,029 – 385 11 586 2,011Disposals – – – (223) – (84) (13) – (320)

At 30 June 2009, as restated 23 196 220 4,877 12 2,427 63 586 8,404

Depreciation and impairmentAt 1 July 2008, as previously reported – – 88 2,046 10 1,689 31 – 3,864Effect of adoption of IAS 17 (Amendment) (Note 2(a)) – 21 – – – – – – 21

At 1 July 2008, as restated – 21 88 2,046 10 1,689 31 – 3,885Exchange translation – – (5) (233) (1) (168) (4) – (411)Charge for the year – 5 9 465 1 282 14 – 776Disposals – – – (194) – (78) (10) – (282)Impairment charge – – – 32 – 6 – – 38

At 30 June 2009, as restated – 26 92 2,116 10 1,731 31 – 4,006

Net book valueAt 30 June 2009 23 170 128 2,761 2 696 32 586 4,398

The leasehold land in Hong Kong is held on medium-term (10 to 50 years) leases and is held under finance leases.

122


16 Investment properties


Opening balance – –Acquisition of remaining interest in the associated companies (Note 29) 12 –

Closing balance 12 –

The investment properties represent certain medium term leasehold land and buildings located in the People’s Republic of China. An independent professional valuer, American Appraisal China Limited, valued the properties at 30 June 2010 on an open market value basis at HK$12 million.

17 Investments in associates


Share of net assets – 522

On 12 February 2010, the Group acquired the remaining interest of the associated companies with operations in the People’s Republic of China from China Resources Enterprise, Limited (Note 29).

The following is a list of the principal associates, all of which were unlisted as at 30 June 2009:

Name of associates

Place of incorporation/operation

Attributable equity interest

to the Group

Issued and fully paid

share capital/registered

capitalPrincipal activities

Tactical Solutions Incorporated (“TSI”)

British Virgin Islands/The People’s Republic of China

49% US$100 Investment holding

CRE Esprit Inc. The People’s Republic of China

49% RMB5,000,000 Retail and wholesale distribution of apparel, accessories and cosmetic products

Except for royalty payments by TSI which had scheduled payment due dates and bore interest at Hong Kong dollar prime rate plus 3% on overdue balances, the amounts due from associates as at 30 June 2009 were unsecured, interest free and had no fixed terms of repayment.

Summary of unaudited consolidated financial information of the associates is as follows:


Assets n.a. 1,363Liabilities n.a. (298)

Net assets n.a. 1,065

Revenue (Note 1) 1,725 2,678

Net profit (Note 2) 166 329

Note 1: Represents revenue for the period from 1 July 2009 to 11 February 2010

Note 2: Represents net profit for the period from 1 July 2009 to 11 February 2010

n.a. means “Not applicable”

18 Inventories


Finished goods 2,381 2,867Consumables 74 130

2,455 2,997

19 Debtors, deposits and prepayments

As at 30 June As at 30 June As at 31 July 2010 2009 2008

HK$ million HK$ million HK$ million(restated) (restated)

Trade debtors 2,777 3,290 4,161Less: provision for impairment of trade debtors (388) (251) (154)

2,389 3,039 4,007Deposits 231 446 230Prepayments 528 630 668Other debtors and receivables 335 272 422

3,483 4,387 5,327Non-current portion of deposits (160) (192) (194)Non-current portion of prepayments (280) (367) (375)

Current portion 3,043 3,828 4,758

Maximum exposure to credit risk 2,955 3,757 4,659

123


19 Debtors, deposits and prepayments (continued)

The ageing analysis by due date of trade debtors net of provision for impairment is as follows:

As at 30 June As at 30 June As at 1 July2010 2009 2008

HK$ million HK$ million HK$ million

Current portions 1,873 2,410 3,268

1-30 days 165 246 36631-60 days 98 137 15161-90 days 56 76 63Over 90 days 197 170 159

Amount past due but not impaired 516 629 739

2,389 3,039 4,007

The carrying amount of debtors, deposits and prepayments approximates their fair value.

There is no concentration of credit risk with respect to trade debtors as the Group has a large number of internationally dispersed customers.

Concerning trade debtors that are neither impaired nor past due, there were no indications at the balance sheet date that defaults in payment obligations will occur as these relate to a number of independent customers for whom there is no recent history of default.

Movements in provision for impairment of trade debtors are as follows:


At beginning of year 251 154Provision for impairment of trade debtors 293 196Bad debts written off (87) (69)Unused amounts reversed (10) (15)Exchange translation (59) (15)

At end of year 388 251

The individually impaired receivables mainly relate to wholesalers which have unexpected liquidity problems.

During the year, the Group renegotiated the terms of trade debtors totaling HK$124 million (30 June 2009: HK$164 million, 1 July 2008: HK$149 million) that would otherwise be past due at the balance sheet date.

20 Cash and cash equivalents

Cash and cash equivalents include the following for the purposes of the consolidated cash flow statement:


Short-term bank deposits 3,089 1,507Bank balances and cash 3,659 3,333

6,748 4,840

The maximum exposure to credit risk as at 30 June 2010 is the carrying amount of bank balances and short-term bank deposits.

The effective interest rate on cash and cash equivalents for 2010 was determined to be 0.4% (2009: 1.7 %) per annum; the short-term bank deposits generally have a maturity of less than 180 days.

21 Share capital


Authorised:2,000,000,000 shares of HK$0.10 each 200 200

Numberof shares of

HK$0.10 Nominaleach value

million HK$ million

Issued and fully paid:Balance at 1 July 2009 1,246 125Exercise of share options (Note (a)) 5 –Issue of scrip shares (Note (b)) 37 4

Balance at 30 June 2010 1,288 129

Balance at 1 July 2008 1,244 124Exercise of share options 5 1Repurchase of shares (Note (c)) (3) –

Balance at 30 June 2009 1,246 125

124


21 Share capital (continued)

(a) During the year, 4,875,000 (2009: 4,607,000) ordinary shares of HK$0.10 were issued in respect of the share options exercised by Directors and employees under the share option scheme (defined in note (d) below) at exercise prices in the range of HK$14.60 to HK$47.10 (2009: HK$14.60 to HK$42.58) each (representing a premium in the range of HK$14.50 to HK$47.00 (2009: HK$14.50 to HK$42.48) each).

(b) On 10 December 2009, the shareholders approved a final dividend of HK$0.72 per share and a special dividend of HK$1.33 per share for the year ended 30 June 2009. The shareholders were provided with an option to receive the final dividend in form of shares in lieu of cash while the special dividend was paid out in form of shares. On 15 January 2010, 531,079 and 30,816,866 shares were issued in respect of the final dividend and special dividend respectively.

On 3 February 2010, the Board of Directors declared an interim dividend of HK$0.74 per share for the six months ended 31 December 2009. The shareholders were provided with an option to receive the interim dividend in form of shares in lieu of cash. On 12 April 2010, 5,973,081 shares were issued in respect of the interim dividend.

(c) In the year ended 30 June 2009, the Company repurchased 2,615,500 of its own ordinary shares at a total consideration of HK$203 million on The Stock Exchange of Hong Kong Limited.

(d) Share options

The Company adopted a share option scheme on 26 November 2001 (the “2001 Share Option Scheme”). On 10 December 2009, the shareholders approved at the annual general meeting of the Company (the “2009 AGM”) the termination of the 2001 Share Option Scheme provided that the share options which have been granted and remained outstanding and/or committed shall continue to follow the provisions of the 2001 Share Option Scheme and the Rules governing the Listing of Securities on The Stock Exchange of Hong Kong Limited (the “Listing Rules”).

On 10 December 2009, the shareholders approved at the 2009 AGM a new share option scheme (the “2009 Share Option Scheme”).

Information on the Schemes

The following is a summary of 2001 Share Option Scheme and 2009 Share Option Scheme (together the “Schemes”) disclosed in accordance with the Listing Rules.

Purpose of the Schemes

The Schemes are share incentive schemes and are established to recognise and acknowledge the contributions that eligible persons make or may make to the Group.

The Schemes provide eligible persons with an opportunity to have a personal stake in the Company with a view to:

(i) motivating eligible persons to optimise their performance and efficiency for the benefit of the Group; and

(ii) attracting and retaining or otherwise maintaining ongoing business relationships with eligible persons whose contributions are or will be beneficial to the long term growth of the Group.

Participants of the Schemes

The board may at its discretion grant options to:

(i) any director, employee, consultant, customer, supplier, agent, partner or adviser of or contractor to the Group or a company in which the Group holds an interest or a subsidiary of such company (“Affiliate”); or

(ii) the trustee of any trust the beneficiary of which or any discretionary trust the discretionary objects of which include any director, employee, consultant, customer, supplier, agent, partner or adviser of or contractor to the Group or an Affiliate; or

(iii) a company beneficially owned by any director, employee, consultant, customer, supplier, agent, partner, adviser of or contractor to the Group or an Affiliate.

Total number of shares available for issue under the Schemes and percentage of issued share capital at 30 June 2010

The total number of shares available for issue upon exercise of all outstanding options already granted under the Schemes is 49,645,000 shares (2001 Share Option Scheme: 48,845,000 shares and 2009 Share Option Scheme: 800,000 shares), representing 3.85% of the issued share capital of the Company at 30 June 2010.

The maximum number of shares available for issue upon exercise of options not yet granted under the Schemes is 123,709,064 shares (2001 Share Option Scheme: 16,526,371 shares and 2009 Share Option Scheme: 107,182,693 shares), representing 9.60% of the issued share capital of the Company at 30 June 2010.

125



Maximum entitlement of each participant under the Schemes

The maximum entitlement of each participant under the Schemes shall not exceed any limits that may be imposed under the Listing Rules from time to time as amended and in force.

In accordance with the current Listing Rules no options may be granted to any eligible persons which if exercised in full would result in the total number of shares issued and to be issued upon exercise of the share options already granted or to be granted to such eligible person under the Schemes or any other schemes of the Company (including exercised, cancelled and outstanding share options) in the 12-month period up to and including the date of such new grant exceeding 1% of the issued share capital of the Company at the date of such new grant. Any grant of further options above this limit is subject to certain requirements as stipulated in the Listing Rules.

The period within which the shares must be taken up under an option under the Schemes

An option is exercisable, subject to certain restrictions contained in the Schemes and the terms on which the option is granted at any time during the applicable option period which period may be determined by the board but which shall in no event be more than 10 years from the date of grant of the option.

The minimum period for which an option must be held before it can be exercised under the Schemes

There is no general requirement on the minimum period for which an option must be held or the performance targets which must be achieved before an option can be exercised under the Schemes. At the time of granting an option, however, the board may, on a case by case basis, make such grant subject to such conditions, restrictions or limitations in relation thereto, including the minimum period for which the option must be held and/or the performance targets to be achieved, additional to those expressly set forth in the Schemes as the board may in its absolute discretion determine.

The amount payable on application or acceptance of the option and the period within which payments or calls must or may be made or loans for such purposes must be repaid under the Schemes

There is no amount payable on application or acceptance of the option and the period within which payments or calls must or may be made or loans for such purposes must be repaid.

The basis of determining the subscription price under the Schemes

The price per share at which a grantee may subscribe for shares upon the exercise of an option is determined by the board and shall not be less than the highest of:

(i) the closing price of the Company’s shares as stated in the daily quotation sheet of The Stock Exchange of Hong Kong Limited (“the Stock Exchange”) on the date of grant of the relevant option, which must be a Business Day (as defined in the Listing Rules);

(ii) an amount equivalent to the average closing price of the Company’s shares as stated in the Stock Exchange’s daily quotations sheets for the five Business Days immediately preceding the date of grant of the relevant option; and

(iii) the nominal value of the Company’s shares.

The remaining life of the 2001 Share Option Scheme

On 10 December 2009, the shareholders approved at the 2009 AGM the termination of the 2001 Share Option Scheme and no further options may be granted to eligible person under the 2001 Share Option Scheme with effect thereof, save and except the options which have been committed prior to such date shall continue to follow the provisions of the 2001 Share Option Scheme and the Listing Rules.

Details of the share options granted during the year and outstanding share options as at 30 June 2010 under the 2001 Share Option Scheme were as follows:


2010 2009

Opening balance 49,510,000 41,636,000Granted during the year (Note (i)) 10,500,000 23,450,000Exercised during the year (Note (ii)) (4,875,000) (4,607,000)Lapsed during the year (490,000) (5,355,000)Forfeited during the year (5,800,000) (5,614,000)

Closing balance (Note (iii)) 48,845,000 49,510,000

126



(i) Details of share options granted during the year ended 30 June 2010 were as follows:

Exercise price Number ofExercise period HK$ options

9 December 2010 – 8 December 2015 53.74 672,0009 December 2011 – 8 December 2015 53.74 672,0009 December 2012 – 8 December 2015 53.74 672,0009 December 2013 – 8 December 2015 53.74 672,0009 December 2014 – 8 December 2015 53.74 672,00011 December 2010 – 10 December 2015 53.90 399,00011 December 2011 – 10 December 2015 53.90 399,00011 December 2012 – 10 December 2015 53.90 399,00011 December 2013 – 10 December 2015 53.90 399,00011 December 2014 – 10 December 2015 53.90 399,0004 February 2011 – 3 February 2016 57.70 510,0004 February 2012 – 3 February 2016 57.70 510,0004 February 2013 – 3 February 2016 57.70 510,0004 February 2014 – 3 February 2016 57.70 510,0004 February 2015 – 3 February 2016 57.70 510,0005 February 2011 – 4 February 2016 55.46 159,0005 February 2012 – 4 February 2016 55.46 159,0005 February 2013 – 4 February 2016 55.46 159,0005 February 2014 – 4 February 2016 55.46 159,0005 February 2015 – 4 February 2016 55.46 159,0009 February 2011 – 8 February 2016 56.90 180,0009 February 2012 – 8 February 2016 56.90 180,0009 February 2013 – 8 February 2016 56.90 180,0009 February 2014 – 8 February 2016 56.90 180,0009 February 2015 – 8 February 2016 56.90 180,00010 May 2011 – 9 May 2016 52.61 120,00010 May 2012 – 9 May 2016 52.61 120,00010 May 2013 – 9 May 2016 52.61 120,00010 May 2014 – 9 May 2016 52.61 120,00010 May 2015 – 9 May 2016 52.61 120,00022 June 2011 – 21 June 2016 45.24 60,00022 June 2012 – 21 June 2016 45.24 60,00022 June 2013 – 21 June 2016 45.24 60,00022 June 2014 – 21 June 2016 45.24 60,00022 June 2015 – 21 June 2016 45.24 60,000

10,500,000

Details of share options granted during the year ended 30 June 2009 were as follows:


9 December 2009 – 8 December 2014 44.25 642,0009 December 2010 – 8 December 2014 44.25 642,0009 December 2011 – 8 December 2014 44.25 642,0009 December 2012 – 8 December 2014 44.25 642,0009 December 2013 – 8 December 2014 44.25 642,00011 December 2009 – 10 December 2014 45.95 756,00011 December 2010 – 10 December 2014 45.95 756,00011 December 2011 – 10 December 2014 45.95 756,00011 December 2012 – 10 December 2014 45.95 756,00011 December 2013 – 10 December 2014 45.95 756,0005 February 2010 – 4 February 2015 39.76 1,032,0005 February 2011 – 4 February 2015 39.76 1,032,0005 February 2012 – 4 February 2015 39.76 1,032,0005 February 2013 – 4 February 2015 39.76 1,032,0005 February 2014 – 4 February 2015 39.76 1,032,0009 February 2010 – 8 February 2015 41.70 420,0009 February 2011 – 8 February 2015 41.70 420,0009 February 2012 – 8 February 2015 41.70 420,0009 February 2013 – 8 February 2015 41.70 420,0009 February 2014 – 8 February 2015 41.70 420,0008 May 2010 – 7 May 2015 51.76 160,0008 May 2011 – 7 May 2015 51.76 160,0008 May 2012 – 7 May 2015 51.76 160,0008 May 2013 – 7 May 2015 51.76 160,0008 May 2014 – 7 May 2015 51.76 160,00022 June 2010 – 21 June 2015 46.45 1,680,00022 June 2011 – 21 June 2015 46.45 1,680,00022 June 2012 – 21 June 2015 46.45 1,680,00022 June 2013 – 21 June 2015 46.45 1,680,00022 June 2014 – 21 June 2015 46.45 1,680,000

23,450,000

127



(ii) Details of share options exercised during the year ended 30 June 2010 were as follows:

Market value*Proceeds received per share

Exercise price Share capital Share premium at exercise dateExercise date HK$ Number of options HK$’000 HK$’000 HK$

28 September 2009 42.58 720,000 72 30,586 51.705 October 2009 24.20 40,000 4 964 49.0530 November 2009 24.20 95,000 10 2,289 52.1030 November 2009 42.58 640,000 64 27,187 52.101 February 2010 42.58 60,000 6 2,549 52.9515 March 2010 42.58 60,000 6 2,549 58.0023 March 2010 24.20 600,000 60 14,460 60.6031 March 2010 42.58 100,000 10 4,248 61.258 April 2010 39.76 30,000 3 1,190 61.658 April 2010 42.58 360,000 36 15,293 61.6516 April 2010 42.58 180,000 18 7,646 60.3021 April 2010 14.60 80,000 8 1,160 59.9021 April 2010 24.20 210,000 21 5,061 59.9021 April 2010 42.58 160,000 16 6,797 59.9026 April 2010 24.20 120,000 12 2,892 59.2526 April 2010 42.58 240,000 24 10,195 59.2528 April 2010 24.45 120,000 12 2,922 57.7028 April 2010 42.58 450,000 45 19,116 57.7028 April 2010 47.10 450,000 45 21,150 57.7029 April 2010 45.95 160,000 16 7,336 55.00

4,875,000 488 185,590

* “Market value” represents the closing price of the share in Hong Kong on the exercise date or on the trading day immediately before the exercise date (if it is a non-trading day).

128



(iii) Share options outstanding at the end of the year have the following terms:

Expiry date Exercise priceNumber of share options outstanding as at 30 June

HK$ 2010 2009

Directors27 November 2010 * 42.58 1,200,000 600,00027 November 2010 ** 42.58 – 600,00026 November 2011 * 24.20 – 600,0007 February 2013 * 83.00 480,000 320,0007 February 2013 ** 83.00 320,000 480,00011 February 2014 * 102.12 240,000 120,00011 February 2014 ** 102.12 360,000 480,0009 February 2015 * 41.70 360,000 –9 February 2015 ** 41.70 1,440,000 1,800,00022 June 2015 * 46.45 1,600,000 –22 June 2015 ** 46.45 6,400,000 8,000,0009 February 2016 ** 56.90 900,000 –

Employees and consultants27 November 2010 * 42.58 1,620,000 3,200,00027 November 2010 ** 42.58 – 1,630,00023 December 2010 * 47.10 – 360,00023 December 2010 ** 47.10 – 90,00026 November 2011 * 14.60 – 80,00026 November 2011 * 24.20 895,000 1,360,00028 November 2011 * 55.11 900,000 555,00028 November 2011 ** 55.11 300,000 690,0002 December 2011 * 56.20 680,000 520,0002 December 2011 ** 56.20 220,000 440,00023 December 2011 * 24.45 240,000 360,00023 December 2011 * 56.50 360,000 270,00023 December 2011 ** 56.50 90,000 180,00027 November 2012 * 80.60 345,000 180,00027 November 2012 ** 80.60 300,000 495,0004 December 2012 * 79.49 480,000 360,0004 December 2012 ** 79.49 330,000 495,0005 December 2012 * 80.95 1,688,000 1,552,0005 December 2012 ** 80.95 1,152,000 2,208,0007 February 2013 * 83.00 120,000 160,0007 February 2013 ** 83.00 80,000 120,0004 December 2013 * 119.00 330,000 210,0004 December 2013 ** 119.00 495,000 660,0005 December 2013 * 118.70 864,000 597,0005 December 2013 ** 118.70 1,296,000 2,208,00031 January 2014 * 100.80 1,360,000 960,00031 January 2014 ** 100.80 2,040,000 3,840,00011 February 2014 * 102.12 60,000 60,00011 February 2014 ** 102.12 90,000 120,0009 December 2014 * 44.25 432,000 –9 December 2014 ** 44.25 1,728,000 2,760,00011 December 2014 * 45.95 516,000 –

Expiry date Exercise priceNumber of share options outstanding as at 30 June

HK$ 2010 2009

Employees and consultants (continued)11 December 2014 ** 45.95 2,064,000 3,780,0005 February 2015 * 39.76 692,000 –5 February 2015 ** 39.76 2,888,000 4,660,0009 February 2015 * 41.70 30,000 –9 February 2015 ** 41.70 120,000 150,0008 May 2015 * 51.76 160,000 –8 May 2015 ** 51.76 640,000 800,00022 June 2015 * 46.45 80,000 –22 June 2015 ** 46.45 320,000 400,0009 December 2015 ** 53.74 3,360,000 –11 December 2015 ** 53.90 1,935,000 –4 February 2016 ** 57.70 2,550,000 –5 February 2016 ** 55.46 795,000 –10 May 2016 ** 52.61 600,000 –22 June 2016 ** 45.24 300,000 –

48,845,000 49,510,000

* The share options listed above are vested as of the respective balance sheet dates.

** The share options listed above are not vested as of the respective balance sheet dates.

The remaining life of the 2009 Share Option Scheme

Options may be granted to eligible persons under the 2009 Share Option Scheme for the period until 9 December 2019.

Details of the share options granted during the year and outstanding share options as at 30 June 2010 under the 2009 Share Option Scheme were as follows:


2010 2009

Opening balance – –Granted during the year (Note (i)) 800,000 –

Closing balance (Note (ii)) 800,000 –

(i) Details of share options granted during the year ended 30 June 2010 were as follows:


19 April 2011 – 18 April 2016 62.21 160,00019 April 2012 – 18 April 2016 62.21 160,00019 April 2013 – 18 April 2016 62.21 160,00019 April 2014 – 18 April 2016 62.21 160,00019 April 2015 – 18 April 2016 62.21 160,000

800,000

129



(ii) Share options outstanding at the end of the year have the following terms:

Expiry date Exercise priceNumber of share optionsoutstanding as at 30 June

HK$ 2010 2009

Employees and consultants19 April 2016 ** 62.21 800,000 –

800,000 –

** The share options listed above are not vested as of the respective balance sheet dates.

Share option expenses charged to the consolidated income statement are based on valuations determined using the Binomial model. Share options granted were valued based on the following assumptions:

Date of grantOption value1

HK$

Share price at the date of grant2

HK$

Exercisable price HK$

Expected volatility3

Annual risk-free interest rate4

Life of option5

Dividend yield6

26 November 2002 3.22 – 5.38 14.60 14.60 47.19% 2.14% – 3.73% 2 – 6 years 1.87%26 November 2003 4.42 – 7.70 24.20 24.20 38.29% 1.53% – 3.54% 2 – 6 years 1.85%23 December 2003 4.39 – 7.71 24.45 24.45 38.09% 1.18% – 3.42% 2 – 6 years 1.85%27 November 2004 7.64 – 13.17 42.20 42.58 38.88% 1.35% – 2.90% 2 – 6 years 1.77%23 December 2004 8.46 – 14.64 47.10 47.10 38.18% 1.00% – 2.88% 2 – 6 years 1.77%21 January 2005 8.15 – 14.00 45.60 45.60 37.23% 1.55% – 3.03% 2 – 6 years 1.77%28 November 2005 8.44 – 14.59 54.45 55.11 28.98% 4.10% – 4.28% 2 – 6 years 1.89%2 December 2005 9.01 – 15.37 56.20 56.20 29.05% 4.16% – 4.37% 2 – 6 years 1.89%23 December 2005 7.67 – 14.67 56.50 56.50 23.50% –27.50% 4.03% – 4.20% 2 – 6 years 1.89%23 February 2006 7.67 – 16.78 58.80 64.31 31.10% 4.07% – 4.20% 2 – 6 years 1.89%27 November 2006 12.57 – 21.01 80.00 80.60 28.64% 3.66% – 3.79% 2 – 6 years 1.84%4 December 2006 12.16 – 20.36 78.70 79.49 28.26% 3.49% – 3.67% 2 – 6 years 1.84%5 December 2006 12.42 – 20.81 80.95 80.95 28.38% 3.48% – 3.68% 2 – 6 years 1.84%7 February 2007 13.42 – 22.58 83.00 83.00 29.18% 4.10% – 4.22% 2 – 6 years 1.84%28 February 2007 13.81 – 23.23 81.40 86.85 28.85% 3.94% – 4.08% 2 – 6 years 1.84%4 December 2007 21.66 – 35.73 119.00 119.00 37.87% 1.86% – 2.75% 2 – 6 years 1.81%5 December 2007 21.37 – 35.46 118.70 118.70 37.74% 1.65% – 2.71% 2 – 6 years 1.81%31 January 2008 21.36 – 34.09 100.80 100.80 45.98% 1.55% – 2.25% 2 – 6 years 1.81%11 February 2008 21.88 – 34.78 93.50 102.12 46.74% 1.47% – 2.13% 2 – 6 years 1.81%6 May 2008 21.04 – 33.66 94.80 94.80 48.56% 1.65% – 2.53% 2 – 6 years 1.81%9 December 2008 8.91 – 14.14 44.25 44.25 45.21% 0.90% – 1.65% 2 – 6 years 2.52%11 December 2008 9.35 – 14.81 45.95 45.95 45.84% 0.85% – 1.57% 2 – 6 years 2.52%5 February 2009 7.00 – 11.77 36.70 39.76 48.98% 0.62% – 1.49% 2 – 6 years 2.52%9 February 2009 8.98 – 14.20 41.70 41.70 49.40% 0.53% – 1.46% 2 – 6 years 2.52%8 May 2009 11.31 – 18.16 51.20 51.76 51.81% 0.51% – 1.86% 2 – 6 years 2.52%22 June 2009 10.56 – 17.00 46.45 46.45 52.37% 0.77% – 2.49% 2 – 6 years 2.52%9 December 2009 11.48 – 18.34 52.25 53.74 54.26% 0.29% – 1.80% 2 – 6 years 3.06%11 December 2009 12.28 – 19.24 53.90 53.90 54.28% 0.31% – 1.80% 2 – 6 years 3.06%4 February 2010 13.31 – 20.94 57.70 57.70 54.82% 0.54% – 2.19% 2 – 6 years 3.06%5 February 2010 12.61 – 19.92 55.10 55.46 54.88% 0.50% – 2.14% 2 – 6 years 3.06%9 February 2010 13.14 – 20.65 56.90 56.90 54.94% 0.49% – 2.12% 2 – 6 years 3.06%19 April 2010 13.09 – 21.17 59.60 62.21 54.94% 0.61% – 2.23% 2 – 6 years 3.06%10 May 2010 11.63 – 18.51 51.50 52.61 55.11% 0.58% – 2.13% 2 – 6 years 3.06%22 June 2010 10.62 – 16.55 45.10 45.24 56.16% 0.73% – 1.98% 2 – 6 years 3.06%

130



1. Since the option pricing model requires input of highly subjective assumptions, fair values calculated are therefore inherently subjective and the model may not necessarily provide a reliable measure of share option expense.

2. The share price at the date of grant disclosed is the closing price of the Company’s shares as stated in SEHK’s daily quotations sheet on the date of grant of the relevant option; where the date of grant of the relevant option did not fall on a Business Day (as defined in the Listing Rules), the closing price of the Company’s shares as stated in SEHK’s daily quotations sheet immediately preceding the date of grant was disclosed.

3. As stated in IFRS 2, the issuer can use either i) implied volatilities obtained from market information; or ii) historical volatilities as expected volatility input to the Binomial option pricing model. For share options granted prior to 1 July 2008 with the exception of those share options granted on 23 December 2005 that used implied volatilities over Esprit shares of similar maturity to the employee options, Esprit has estimated volatility based on the historical stock prices over 1 year preceding the grant date, expressed as an annualised rate and based on daily price changes. For share options granted after 1 July 2008, Esprit has estimated volatility based on the historical stock prices over 3 years preceding the grant date, expressed as an annualised rate and based on daily price changes.

4. The risk-free interest rate was based on the market yield of Hong Kong Exchange Fund notes with a remaining life corresponding to the expected option life.

5. The expected option life was determined by reference to historical data of option holders’ behaviour.

6. Dividend yield was based on the average dividend yield (excluding special dividend) for the three years preceding the year of grant.

22 Creditors and accrued charges


Trade creditors 992 1,165Accruals 2,033 1,726Other creditors and payables 1,121 958

4,146 3,849

The ageing analysis of trade creditors is as follows:


0-30 days 934 1,06531-60 days 35 5961-90 days 6 17Over 90 days 17 24

992 1,165

The carrying amount of creditors and accrued charges approximates their fair value.

23 Bank loans

At 30 June 2010, the Group’s bank loans were payable as follows:


Within 1 year 520 –Between 1 and 2 years 520 –Between 2 and 5 years 1,560 –

Wholly repayable within 5 years 2,600 –Over 5 years – –

2,600 –

The carrying amount of bank loans approximates their fair value.

The bank loans are unsecured. The effective interest rate on bank loans for 2010 was determined to be 0.8% per annum (2009: nil).

131


24 Deferred taxation

The following are the deferred tax assets/(liabilities) recognised and movements thereon during the current year:

The Group:

Acceleratedaccounting

depreciation

Elimination of

unrealised profits

Intangible assets Tax losses

Withholding tax on

undistributed earnings

Other deferred tax

assets

Other deferred tax

liabilities Total

HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million

At 1 July 2008 14 370 (358) 64 – 62 (30) 122(Charged)/credited to income statement 16 (55) 3 (6) – 3 21 (18)Changes in tax rates – – 102 – – – – 102Exchange difference recognised in equity (2) (55) 15 (3) – (6) (38) (89)

At 30 June 2009 28 260 (238) 55 – 59 (47) 117(Charged)/credited to income statement 36 2 7 (13) (372) 91 12 (237)Acquisition of remaining interest in the associated companies (Note 29) – – (147) 2 (24) 53 (1) (117)Changes in tax rates (1) – (21) – – – – (22)Exchange difference recognised in equity (4) (34) 13 (2) – (8) 4 (31)

At 30 June 2010 59 228 (386) 42 (396) 195 (32) (290)

132


24 Deferred taxation (continued)

For the purpose of balance sheet presentation, certain deferred tax assets and liabilities have been offset. The following is the analysis of the deferred tax balances for financial reporting purposes:


Deferred tax assets 532 408Deferred tax liabilities 822 291

At 30 June 2010, the Group had unused tax losses of approximately HK$1,129 million (2009: HK$1,061 million) available for offset against future taxable profits. A deferred tax asset has been recognised in respect of approximately HK$218 million (2009: HK$294 million) of such losses. No deferred tax asset has been recognised in respect of the remaining losses of approximately HK$911 million (2009: HK$767 million). Included in unrecognised tax losses are losses of approximately HK$368 million (2009: HK$432 million) that will expire in the next one to twenty years. Other losses may be carried forward indefinitely.

Deferred income tax liabilities of HK$8 million (2009: HK$420 million) have not been recognised for the withholding tax and other taxes that would be payable on the unremitted earnings of certain subsidiaries. Such amounts are permanently reinvested.

25 Notes to consolidated cash flow statement

Reconciliation of profit before taxation to cash generated from operations:


Profit before taxation 5,474 5,977Adjustments for: Interest income (33) (87) Finance costs 12 – Depreciation 884 776 Impairment of property, plant and equipment 655 38 Loss on disposal of property, plant and equipment 32 32 Share of results of associates (81) (161) Employee share option expense 153 92

Gain on measuring equity interest in associated companies held before the business combination (1,586) – Amortisation of customer relationships 23 –

Operating profit before changes in working capital 5,533 6,667Changes in working capital (excluding the effects of business combinations): Decrease in inventories 707 173 Decrease in debtors, deposits and prepayments 1,199 953 Decrease in amounts due from associates 71 12 Decrease in creditors and accrued charges (293) (716)Effect of foreign exchange rate changes (513) (631)

Cash generated from operations 6,704 6,458

133


25 Notes to consolidated cash flow statement (continued)

In the consolidated cash flow statement, proceeds from disposal of property, plant and equipment comprised:


Net book amount 48 38Loss on disposal of property, plant and equipment (32) (32)

Proceeds from disposal of property, plant and equipment 16 6

26 Operating lease commitments

The total future minimum lease payments under non-cancelable operating leases are as follows:


Land and buildings – within one year 2,767 2,696 – in the second to fifth year

inclusive 9,156 9,305 – after the fifth year 7,491 8,256

19,414 20,257

Other equipment – within one year 25 25 – in the second to fifth year

inclusive 42 16

67 41

19,481 20,298

The operating lease rentals of certain retail outlets are based on the higher of a minimum guaranteed rental or a sales level based rental. The minimum guaranteed rental has been used to arrive at the above commitments.

The total future minimum lease receipts under non-cancelable subleases in respect of land and buildings at 30 June 2010 are HK$55 million (2009: HK$81 million).

27 Capital commitments


Property, plant and equipment – Contracted but not provided for 216 130 – Authorised but not contracted

for 1,026 812

1,242 942

28 Derivative financial instruments

The Group enters into foreign currency forward contracts in the management of its exchange rate exposures. The instruments purchased are primarily denominated in the currencies of the Group’s principal markets.

At 30 June 2010, the fair values of the foreign currency forward contracts included in other receivables and other payables are as below:

2010 2009Assets Liabilities Assets Liabilities

HK$ million

HK$ million

HK$ million

HK$ million

Foreign currency forward contracts Cash flow hedges – – – 3 Fair value hedges 7 – 7 27

7 – 7 30

These amounts are based on market values of equivalent instruments at the balance sheet date.

At the balance sheet date, the total notional amount of outstanding foreign currency forward contracts to which the Group has committed is as below:


Foreign currency forward contracts 162 1,483

Gains and losses in equity on foreign currency forward contracts as of 30 June 2010 will be released to the consolidated income statement at various dates between one month to one year from the balance sheet date, to match the recognition of the hedged items in the consolidated income statement.

The Group did not have any ineffective portion of changes in fair value of foreign currency forward contracts for the year ended 30 June 2010 (2009: nil).

134


29 Business combinations

On 12 February 2010, the Group acquired the remaining 51% equity interest of the associated companies with operations in the People’s Republic of China (“China Group”) from China Resources Enterprise, Limited (“CRE”). The associated companies are engaged in the business of establishing and maintaining distribution, promotion and retail activities of products bearing the “Esprit” and “Red Earth” trademarks in the PRC on an exclusive basis.

On 1 March 2010, the Group acquired from a third party 100% of the share capital of ESP Clothing Finland OY (“ESP Clothing”), which is based in Finland engaging in trading and investing activities.

The acquired businesses contributed turnover of HK$793 million and profit attributable to shareholders of HK$37 million to the Group for the period from their respective dates of acquisition to 30 June 2010. If these transactions had occurred on 1 July 2009, Group turnover would have been HK$34,706 million, and profit attributable to shareholders would have been HK$4,291 million. These amounts have been calculated using the Group’s accounting policies and by adjusting the results of the relevant subsidiaries to reflect the additional depreciation and amortisation that would have been charged assuming the fair value adjustments to property, plant and equipment and intangible assets had applied from 1 July 2009, together with the consequential tax effects.

Details of net assets acquired and goodwill are as follows:

China Group ESP Clothing TotalHK$ million HK$ million HK$ million

Cash consideration 3,880 42 3,922

Fair value of equity interest in the associated companies held before the business combination 1,945 – 1,945

5,825 42 5,867Less: Fair value of total identifiable net assets acquired (1,106) – (1,106)

Goodwill 4,719 42 4,761

The goodwill is attributable to the economies of scale expected from combining the operations of the Group and the acquired businesses. The Group is in the process of making an allocation of the goodwill arising from the acquisition of remaining interest in the associated companies and the acquisition of a subsidiary in the current year to the cash-generating units of the Group.


Intangible assets arising from business combinations

– Customer relationships (Note 14) 589 – 589Property, plant and equipment (Note 15) 86 2 88Investment properties (Note 16) 12 – 12Deferred tax assets (Note 24) 55 – 55Inventories 165 – 165Debtors, deposits and prepayments 288 4 292Cash and cash equivalents 457 1 458Creditors and accrued charges (326) (7) (333)Taxation (48) – (48)Deferred tax liabilities (Note 24) (172) – (172)

Total identifiable net assets 1,106 – 1,106

The Group recognised a gain of HK$1,586 million as a result of measuring at fair value its 49% equity interest in the associated companies held before the business combination. The gain is reported as gain on measuring equity interest in the associated companies held before the business combination in the consolidated income statement for the year ended 30 June 2010.

135


29 Business combinations (continued)

The analysis of the net outflow of cash and cash equivalents in respect of the business combinations is as follows:


Purchase consideration 3,880 42 3,922Purchase consideration payable (250) – (250)Cash and cash equivalents acquired (457) (1) (458)

Net outflow of cash and cash equivalents in respect of the business combinations 3,173 41 3,214

The amount of acquisition-related costs included in other operating costs in the consolidated income statement for the year ended 30 June 2010 is HK$30 million.

30 Related party transactions

The Group entered into transactions with related companies in the ordinary course of business and on similar terms made available to those unrelated third parties during the year. Details relating to these related party transactions are as follows:


Transactions with associatesSales of finished goods 785 1,210Royalty and accrued interest receivable/received 22 37Commission received 1 7

Other than the above and the key management compensation as set out in note 13, the Group had no material related party transactions during the year.

31 Summarised balance sheet of the company

Included below is summarised balance sheet information of the Company as at 30 June disclosed in accordance with Bermuda Law:


Non-current assetsInvestments in subsidiaries, at cost 949 851

Current assetsLoans to subsidiaries (i) 1,631 1,625Amounts due from subsidiaries (i) 7,206 4,663Cash and cash equivalents 1 1

8,838 6,289

Current liabilitiesAmounts due to subsidiaries (i) 3,951 2,303Accrued charges 14 7

3,965 2,310

Net current assets 4,873 3,979

Net assets 5,822 4,830

EquityShare capital 21 129 125Share premium (ii) 3,073 2,841Contributed surplus (ii) 474 474Employee share-based payment reserve (ii) 481 378Retained profits (ii) 1,665 1,012

Total equity 5,822 4,830

i. The loans to subsidiaries and the amounts due from/to subsidiaries are unsecured, interest free and have no fixed terms of repayment. The credit quality of the loans to subsidiaries and amounts due from subsidiaries can be assessed by reference to historical information about counterparties default rates. None of them have defaults or been renegotiated in the past.

136


31 Summarised balance sheet of the company (continued)

ii. Movements of reserves are as follows:

Sharepremium

Contributedsurplus

Employeeshare-based

paymentreserve

Retainedprofits Total


At 1 July 2008 2,896 474 322 4,104 7,796Profit attributable to shareholders – – – 1,947 1,9472007/08 final and special dividends paid – – – (4,042) (4,042)2008/09 interim dividend paid (Note 10) – – – (997) (997)Issues of shares 113 – – – 113Repurchase of shares (204) – – – (204)Employee share option benefits – – 92 – 92Transfer of reserve 36 – (36) – –

Balance at 30 June 2009 2,841 474 378 1,012 4,705


Balance at 30 June 2009 4,705

At 1 July 2009 2,841 474 378 1,012 4,705Profit attributable to shareholders – – – 2,135 2,1352008/09 final and special dividends paid (Note 10) (3) – – (870) (873)2009/10 interim dividend paid (Note 10) (1) – – (612) (613)Issues of shares (Note 21) 186 – – – 186Employee share option benefits – – 153 – 153Transfer of reserve 50 – (50) – –

Balance at 30 June 2010 3,073 474 481 1,665 5,693


Balance at 30 June 2010 5,693

The contributed surplus of the Company represents the difference between the underlying net tangible assets of the subsidiaries acquired by the Company and the nominal amount of the share capital issued by the Company arising from the Group reorganisation which became effective on 17 November 1993 and the excess of the value of the shares acquired over the nominal value of the shares issued for the acquisition of Esprit Far East Limited and its subsidiaries on 10 January 1997.

Contributed surplus is available for distribution to shareholders under the laws of Bermuda. Distributable reserves of the Company at 30 June 2010 amounted to HK$2,620 million (2009: HK$1,864 million).

iii. The Company did not have any operating lease commitment at 30 June 2010 (2009: nil).

iv. The Company did not have any significant capital commitment at 30 June 2010 (2009: nil).

v. The Company provided a guarantee of HK$2,600 million (2009: nil) in respect of bank loans to a subsidiary at 30 June 2010. The guarantee is callable upon the subsidiary’s defaults in repayment of the bank loans.

vi. The loans to subsidiaries and amounts due from subsidiaries together with the guarantee provided to a subsidiary in respect of bank loans represented the amount of maximum exposure to credit risk of the Company.

137


32 Principal subsidiaries

The following are the principal subsidiaries as at 30 June 2010 which, in the opinion of the Directors, principally affect the results and net operating assets of the Group. To give details of other subsidiaries would in the opinion of the Directors result in particulars of excessive length. None of the subsidiaries had issued any debt securities at the end of the year.

Name of subsidiaryPlace of incorporation/operation


to the Group (Note a)

Issued and fully paid share capital/registered capital

(Note b) Principal activities

Esprit Belgie Retail N.V. Belgium 100% EUR1,200,000 Retail distribution of apparel and accessories

Esprit Belgie Wholesale N.V. Belgium 100% EUR100,000 Wholesale distribution of apparel and accessories

Esprit Canada Distribution Limited (formerly known as Esprit Canada Wholesale Limited)

Canada 100% CAD 1 Wholesale distribution of apparel and accessories

Esprit Canada Retail Limited Canada 100% CAD12 Retail distribution of apparel and accessories

Esprit Canada Wholesale Inc. Canada 100% CAD1 Wholesale distribution of apparel and accessories

Esprit Capital Limited British Virgin Islands/ Hong Kong

100% USD1 Investment

Esprit Card Services GmbH Germany 100% EUR25,000 Issuance, accounting of and service in connection with GiftCard, as provided for Esprit group and distribution partners in Europe

Esprit China Distribution Limited British Virgin Islands/ Hong Kong

100% USD100 Investment holding

Esprit Corporate Services Limited British Virgin Islands/ Hong Kong

100% USD100 Financial services

Esprit de Corp Danmark A/S Denmark 100% DKK12,000,000 Wholesale and retail distribution of apparel and accessories

Esprit de Corp (Far East) Limited Hong Kong 100% HKD1,200,000 Sourcing of apparel and accessories

Esprit de Corp. France SAS (formerly known as Esprit de Corp. France S.A.)

France 100% EUR63,373,350 Wholesale and retail distribution of apparel and accessories

Esprit De Corp (Malaysia) Sdn, Bhd. Malaysia 100% MYR2,000,000 Retail distribution of apparel and accessories

Esprit de Corp. (Spain) S.L. Spain 100% EUR10,000 Wholesale and retail distribution of apparel and accessories

Esprit de Corp. (1980) Ltd Canada 100% CAD1,000,001 Retail distribution of apparel and accessories

138


32 Principal subsidiaries (continued)






Esprit Design & Product Development GmbH

Germany 100% EUR100,000 Providing of services to the worldwide Esprit group in relation to the development of designs, styles and prototypes for the sales line of Esprit products

Esprit Europe B.V. The Netherlands 100% EUR1,500,000 Investment holding and wholesale and retail distribution of apparel and accessories, licensing of trademarks

Esprit Europe GmbH Germany 100% EUR5,112,919 Management and control function; render of services to the Esprit group

Esprit Europe Services GmbH Germany 100% EUR2,700,000 Sourcing, purchase and sale of merchandise, distribution of merchandise and other logistic functions, including customs dealing and quality control

Esprit GB Limited United Kingdom 100% GBP150,001 Wholesale and retail distribution of apparel and accessories

Esprit Global Limited (formerly known as ESP Group Limited)

British Virgin Islands/ Hong Kong

100% USD500 Investment holding

Esprit Global Image GmbH Germany 100% EUR25,000 Design and image directions; conceptualisation and development of global uniform image; development and conceptualisation of global image direction within product development

Esprit Handelsgesellschaft mbH Austria 100% EUR100,000 Wholesale and retail distribution of apparel and accessories

Esprit (Hong Kong) Limited Hong Kong 100% HKD1 Management and control function; render of services to the Esprit group

Esprit International (limited partnership)

United States 100% N/A Holding and licensing of trademarks

Esprit International (GP) Inc. United States 100% USD1,000 General partner of Esprit International (limited partnership)

Esprit IP Limited British Virgin Islands/ Hong Kong

100% USD1 Holding and licensing of trademarks

Esprit Ireland Distribution Ltd. Republic of Ireland 100% EUR1 Wholesale and retail distribution of apparel and accessories

Esprit Italy Distribution S.R.L. Italy 100% EUR12,750 Wholesale distribution of apparel and accessories

Esprit Italy Retail S.R.L. Italy 100% EUR10,000 Retail distribution of apparel and accessories

139








Esprit Luxembourg S.á.r.L. Luxembourg 100% EUR250,000 Retail distribution of apparel and accessories

Esprit Macao Commercial Offshore Limited

Macau 100% MOP3,000,000 Wholesale distribution of apparel and accessories

Esprit (Norway) A/S Norway 100% NOK16,000,000 Wholesale and retail distribution of apparel and accessories

Esprit Property Limited Hong Kong 100% HKD2 Investment holding

Esprit Regional Services Limited British Virgin Islands/ Hong Kong

100% USD1 Provision of services

Esprit Retail B.V. & Co. KG (limited partnership)

Germany 100% EUR5,000,000 Retail distribution of apparel and accessories, operation of Esprit Café

Esprit Retail (Hong Kong) Limited Hong Kong 100% HKD10,000 Retail distribution of apparel and accessories and operation of Salon Esprit

Esprit (Retail) Proprietary Limited Australia 100% AUD200,000 Wholesale and retail distribution of apparel and accessories

Esprit Retail Pte Ltd Singapore 100% SGD3,000,000 Retail distribution of apparel and accessories

Esprit Retail (Taiwan) Limited Hong Kong/Taiwan 100% HKD9,000 Retail distribution of apparel and accessories

Esprit Sweden AB Sweden 100% SEK500,000 Wholesale and retail distribution of apparel and accessories

Esprit Swiss Treasury Limited British Virgin Islands/ Hong Kong

100% USD1 Financial services

Esprit Switzerland Distribution AG Switzerland 100% CHF100,000 Wholesale distribution of apparel and accessories

Esprit Switzerland Retail AG Switzerland 100% CHF500,000 Retail distribution of apparel and accessories

Esprit US Distribution Limited United States 100% USD1,000 Wholesale distribution of apparel and accessories

Esprit US Online Shop Limited United States 100% USD1,000 Online retail distribution of apparel and accessories

Esprit US Retail Limited United States 100% USD0.001 Retail distribution of apparel and accessories

140








Esprit US Wholesale Limited United States 100% USD1,000 Wholesale distribution of apparel and accessories

Esprit Wholesale GmbH Germany 100% EUR5,000,000 Wholesale distribution of apparel and accessories

EFE (Investments-II) S.á.r.L. (formerly known as EFE (Investments-II) Limited)

Netherlands Antilles/ Luxembourg (Note c)

100% EUR16,101 Management of European group subsidiaries and investment holding

ESP Clothing Finland OY Finland 100% EUR2,500 Agency services

Garment, Acessories and Cosmetics Esprit Retail (Macau) Limited

Macau 100% MOP100,000 Retail distribution of apparel and accessories

Sijun Fashion (Shenzhen) Co., Ltd. The People’s Republic of China (Note d)

100% USD1,600,000 Sample development

Notes:

(a) All subsidiaries were held indirectly by the Company, except Esprit Global Limited (formerly known as ESP Group Limited).

(b) All are ordinary share capital unless otherwise stated.

(c) EFE (Investments-II) S.á.r.L. was redomiciled from Netherlands Antilles to Luxembourg with effect from 14 May 2010.

(d) Wholly owned foreign enterprise.

33 Comparative figures

Certain comparative figures relating to deposits and prepayments and segment information have been reclassified to conform with the current year’s presentation.

141


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Annual Report 09/10

144

Annual Report 09/1008 // TEN-YEAR SUMMARY

CONSOLIDATED BALANCE SHEET ITEMS

As at 30 June

2010 2009 2008 2007HK$ million HK$ million HK$ million HK$ million

(restated) (restated) (restated)

Intangible assets 7,345 2,061 2,121 2,057Property, plant and equipment 3,976 4,398 3,570 2,705Investment properties 12 – – –Other investments 7 7 7 7Investments in associates – 522 583 406Deposits and prepayments 440 559 569 –Deferred tax assets 532 408 510 396Net current assets 6,662 6,745 8,972 6,888

18,974 14,700 16,332 12,459

EquityShare capital 129 125 124 123Reserves 15,943 14,284 15,820 11,958

Total equity 16,072 14,409 15,944 12,081Minority interests – – – –

16,072 14,409 15,944 12,081

Obligation under finance leases – – – –Bank loans 2,080 – – –Deferred tax liabilities 822 291 388 378

2,902 291 388 378

18,974 14,700 16,332 12,459

CONSOLIDATED INCOME STATEMENT ITEMS

Year ended 30 June

2010 2009 2008 2007HK$ million HK$ million HK$ million HK$ million

Turnover 33,734 34,485 37,227 29,640

Operating profit 3,786 5,729 7,721 6,259Interest income 33 87 190 149Finance costs (12) – – –Share of results of associates 81 161 145 130Gain on measuring equity interest in the associated companies held before the business combination 1,586 – – –

Profit before taxation 5,474 5,977 8,056 6,538Taxation (1,248) (1,232) (1,606) (1,358)

Profit after taxation 4,226 4,745 6,450 5,180

Profit attributable to shareholders 4,226 4,745 6,450 5,180Profit attributable to minority interests – – – –

4,226 4,745 6,450 5,180

Note 1: The Group has adopted IFRS retrospectively with effect from 1 July 2002. The financial information in respect of FY 02|03 to FY 09|10 is prepared in accordance with IFRS. For the purpose of presenting the financial information in respect of FY 00|01 and FY 01|02, certain estimates have been made to adjust the financial information to IFRS, mainly representing the reversal of amortisation of trademarks.

Note 2: Comparative figures relating to property, plant and equipment and net current assets disclosed in the financial summary for prior years have been restated to reflect the adoption of IAS 17 (Amendment) in the current year as described in Note 2(a) to the consolidated financial statement.

145


As at 30 June

2006 2005 2004 2003 2002 2001HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million

(restated) (restated) (restated) (restated) (restated) (restated)

2,027 2,009 2,021 1,960 1,922 7162,614 2,242 1,495 1,077 988 779

– – – – – –8 8 8 8 8 7

269 182 155 122 101 92– – – – – –

315 205 104 93 35 64,232 2,723 1,964 2,027 1,060 616

9,465 7,369 5,747 5,287 4,114 2,216

122 120 119 119 117 1148,985 6,919 5,296 4,073 2,915 1,885

9,107 7,039 5,415 4,192 3,032 1,999– – – – – 18

9,107 7,039 5,415 4,192 3,032 2,017

– – – 1 1 1– – – 776 780 –

358 330 332 318 301 198

358 330 332 1,095 1,082 199

9,465 7,369 5,747 5,287 4,114 2,216

Year ended 30 June

2006 2005 2004 2003 2002 2001HK$ million HK$ million HK$ million HK$ million HK$ million HK$ million

23,349 20,632 16,357 12,381 9,219 8,109

4,765 4,075 2,837 1,811 1,373 1,15237 22 40 42 23 46(1) (2) (22) (32) (14) (38)84 73 63 45 33 24

– – – – – –

4,885 4,168 2,918 1,866 1,415 1,184(1,148) (957) (949) (590) (364) (512)

3,737 3,211 1,969 1,276 1,051 672

3,737 3,211 1,969 1,276 993 600– – – – 58 72

3,737 3,211 1,969 1,276 1,051 672

Note 3: Comparative figures relating to deposits and prepayments and net current assets disclosed in the financial summary in respect of FY 07|08 and FY 08|09 have been restated. Comparative figures for earlier financial years have not been restated as it is not practical and cost-efficient to do so.

146


FINANCIAL SUMMARY

Year ended 30 June 2010 2009 2008 2007

Per share data (HK$)

Earnings per share – basic^^ 3.35 3.72 5.21 4.22Dividend per share – Regular dividend 1.41 1.52 2.10 1.70 – Special dividend – 1.33 2.10 1.48 Total 1.41 2.85 4.20 3.18

Key statistics (HK$ million)

Total equity 16,072 14,409 15,944 12,081Net current assets^ 6,662 6,745 8,972 6,888Cash position (net of overdraft) 6,748 4,840 6,521 5,232Net cash inflow from operating activities 5,412 5,272 5,970 5,881Term loans 2,600 – – –

Retail data

Number of directly managed stores# 1,128 804 700 607Directly managed selling space# (sq.m.) 388,291 314,966 273,801 239,400Comparable store sales growth -2.4% 3.5% 6.9% 19.8%

Wholesale data

Number of controlled-space POS# 12,194 14,067 14,590 13,369Controlled-space sales area# (sq.m.) 759,466 808,605 746,655 629,967

Other data

Capital expenditure (HK$ million) 1,509 2,011 1,352 615Number of employees## 14,172 10,766 10,541 9,617

Key ratios

Return on shareholders’ equity (ROE)### 27.7% 31.3% 46.0% 48.9%Return on total assets (ROA)* 19.1% 22.8% 33.1% 34.7%Net debt to equity** net cash net cash net cash net cashCurrent ratio^ (times) 2.2 2.4 2.6 2.5Inventory turnover***(days) 63 65 54 55Operating profit before depreciation and amortization margin 14.0% 18.9% 22.8% 23.1%

Operating profit margin 11.2% 16.6% 20.7% 21.1%Earnings before taxation margin 16.2% 17.3% 21.6% 22.1%Net profit margin 12.5% 13.8% 17.3% 17.5%

# Include Esprit, Red Earth stores and salon## After converting the part-time positions into full-time positions based on working hours### Calculated based on net earnings as a percentage of average shareholders’ equity* Calculated based on net earnings as a percentage of average total assets** Net debt refers to all interest bearing borrowings less cash and cash equivalents*** Calculated as average inventory (excluding consumables) over cost of goods sold for the year

147


2006 2005 2004 2003 2002 2001

3.09 2.68 1.65 1.07 0.86 0.53

1.23 1.11 0.67 0.40 0.23 0.171.08 0.84 0.50 0.30 0.05 –2.31 1.95 1.17 0.70 0.28 0.17

9,107 7,039 5,415 4,192 3,032 2,0174,232 2,723 1,964 2,027 1,060 6162,469 1,729 1,758 2,097 934 3883,428 2,718 1,983 1,575 1,331 672

250 – – 776 780 –

671 634 562 569 495 485225,693 195,042 172,343 152,108 141,059 126,796

9.0% 8.5% 5.3% 6.9% -0.1% -5.7%

11,459 9,751 7,970 6,459 2,232 1,828525,090 443,321 337,230 264,838 153,649 112,621

838 1,236 662 333 344 5128,400 7,720 6,796 5,751 5,936 5,954

46.3% 51.6% 41.0% 35.3% 39.3% 32.5%32.7% 34.8% 24.7% 19.1% 14.9% 16.8%

net cash net cash net cash net cash net cash net cash2.2 2.0 1.7 1.9 1.6 1.554 47 45 51 64 64

22.7% 21.9% 19.4% 16.8% 17.3% 16.5%

20.4% 19.8% 17.3% 14.6% 14.9% 14.2%20.9% 20.2% 17.8% 15.1% 15.3% 14.6%16.0% 15.6% 12.0% 10.3% 10.8% 7.4%

^ Comparative figures relating to net current assets disclosed in the financial summary for prior years have been restated to reflect the adoption of IAS 17 (Amendment) in the current year as described in Note 2(a) to the consolidated financial statement.

^^ Earnings per share – basic for the year ended 30 June 2009 was restated to account for approximately 31 million scrip shares issued on 15 January 2010. The basic earnings per share was restated as the scrip shares were treated as if the issue had occurred as at 1 July 2008.

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Annual Report 09/10

150

Annual Report 09/1009 // GLOSSARY OF TERMS

Retail

Term Definition

Retail sales Direct sale of merchandise to end consumers via directly managed retail stores or e-shop

Directly managed retail stores

Stores, concessions and outlets fully managed by Esprit. All stores are leased

New store opening Newly opened store locations and includes expanded and relocated stores

Closed store Closed store locations and includes shrunken and relocated stores

e-shop On-line store

Comparable Stores(comp-store)

A directly managed retail store in existence on 1 July of the previous financial year and is still in operation at the reporting period end date and a. its net sales area has been changed by

10% or less within that period; or b. its cumulative renovated area within

the same fiscal year is 20% or less (regardless of any net sales area change)

Comp-store sales growth Local currency year-on-year change in sales generated by comparable stores

Mega flagship stores(mega stores)

Large type stores situated in prominent shopping areas. Offer the most complete collection of Esprit products from all divisions including most licensed products

Flagship stores Large type stores, smaller than mega stores, situated in prominent shopping areas. Offer range of products from most divisions and some licensed products

Concession stores Retail stores situated in big department stores. Offer selective range of product divisions

Outlet stores Situated in the vicinity of major markets. Offer product collection exclusively made for outlets and prior season products at a more competitive price

Wholesale

Term Definition

Wholesale sales Sale of merchandise to third party wholesale customers

Controlled wholesale space

POS which Esprit wholesale management team has control over the look and feel such as Esprit brand name logo, merchandising display, etc. Includes partnership stores, shop-in-stores and identity corners with wholesale customers

Wholesale order book The value of wholesale orders received for future delivery

Yoy increase in wholesale order book

Year to date growth of order value recorded in wholesale order book, compared to same period last year

Franchise stores Stand-alone stores closely resemble our own directly managed retail stores and concession stores located in department stores which local retail partners pay for investment. Esprit provides initial setup support and a wide range of on-going support services to ensure consistency with directly managed retail stores

Partnership stores (PSS)

Same as Franchise stores

Shop-in-stores (SIS)

Controlled wholesale space found in department stores where investments are funded by the department stores. Esprit provides initial setup support and a wide range of on-going support services to ensure consistency with directly managed retail stores

Identity corners (IC)

Mainly multi-label retailers offering a limited range of Esprit products. Esprit has less involvement in store appearance

Multi-label retailers Retail shops which carry multiple brand labels, where the labels are typically differentiated by using brand specific fixtures and signage

Country distributors Exclusive distributors for Esprit products in certain countries, such as China and India

151


Others

Term Definition

Conversion rate Measures the portion of Traffic which is translated into actual purchases

Esprit Club (e-club) Esprit customer loyalty programme where members can enjoy benefits such as collect points or apply discounts, receive updates on latest news about Esprit, enjoy exclusive offers and more. Benefits vary across different regions

Electronic Data Interchange (EDI)

The structured transmission of data between organisations by electronic means. Information such as inventory data are transferred from controlled-space POS computer systems to Esprit’s merchandise planning

Inventory turnover days Calculated by dividing average inventory excluding consumables by average daily cost of goods sold for the reporting period

Licensing For certain product categories, independent third parties are authorised to use the name of Esprit to manufacture and distribute products. Esprit works with over 30 licensees and offers over 30 categories of licensed products

NOOS Never-out-of-stock styles

POS Point-of-sales

Product divisions There are 12 divisions including Women casual, Women collection, edc Women, sports, Men casual, Men collection, edc Men, Kids, Shoes, Accessories, bodywear, de. corp

Season Collections of each product division with consistent theme/design. We design and produce up to 12 seasons per annum for our product divisions

Segment EBIT margin Segment earnings before interest and taxation, finance costs and share of results of associates divided by the segment turnover

Sell through An indicator of how fast a particular product is being sold to a consumer at retail level

Traffic Footfall recorded in a store during a period of time

This annual report is printed on Recyclable Paper

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ANNUAL REPORTYear ended 30 JUNE 2010Hong Kong StocK code 00330

esprit holdings l im ited year ended 30 june...

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